Tips to Fix Your Credit Before Refinancing
Mortgage rates are on the rise, and that means if you have been putting off a refinance, it may be time to hurry. The longer you wait, the more likely the interest rates will increase – at least in today’s economy – and that reduces the value of refinancing in the future.
Refinancing is not only affected by the current mortgage interest rates; it is also affected by your credit score. If you’re looking to refinance, you are going to want to fix your credit as best you can first. That way, you’ll qualify for the best possible rate, and save the most money in the long term.
How to Best Fix Your Credit
Credit scores are complicated, so it helps to speak with a loan originator at Open Mortgage for more specific strategies and advice based on your own unique credit. The following are some strategies that can make it easier for you to raise your credit score quickly:
- Keep a Lower Balance on All Cards – Let’s say you have three credit cards and you are $10,000 in debt. It is often, although not always, better to have $3,333 on each card, rather than $10,000 on one card and $0 on two others.
- Get Removed As a Cosigner – If you are a cosigner on any loans, see if it’s possible to get your name removed. It may not be, but to lenders, a cosigned loan is the same as a loan under your name. If it’s possible to have your name taken off the loan, your credit score should increase.
- Pay Down As Much As Possible – It is more important to pay your debt consistently than to pay down your debt but risk missing a payment in the future. That said, if you do have some extra cash to burn, paying down your debt with some extra money can improve your credit.
- Open a New Card – New credit cards can temporarily lower your credit score, so you shouldn’t open one right before you refinance. If it still may be awhile before you refinance your mortgage, and you only have one or two credit cards to your name, opening a third may help you lower your debt to available credit ratio, which can improve your credit. Make sure the credit card balance always kept at zero, or very low.
- Fix Errors – If you have any errors on your credit score, make sure they’re fixed. Fixing errors on your credit score can be very difficult and time consuming, but if you are able to fix them, it can improve your credit score dramatically.
- Use Old Cards a Little – Make a few small purchases on some old credit cards and pay them off immediately. Your ability to use credit responsibly is factored into your credit score, and keeping older cards slightly active is a good way to make sure that you show that responsibility.
In addition, all common sense practices are important. Do not make any late payments, try not to accumulate any new debt, and consider paying down any debts you can.
Contact Open Mortgage for more information on this this subject, and check out our video on making your credit score work for you.