Improve Credit to Get the Best Chicago Mortgage Rates

There are a wide variety of Chicago home loan types and interest rates, but the very best terms and rates are reserved for borrowers who meet the highest expectations. Do you wish you were one of them? If you’re not being offered the best Chicago mortgage rates, your credit might be to blame. Here’s how your credit affects mortgages rate and what you can do to improve your score.

Relationship Between Credit and Mortgage Rates

Your credit and score are very important components to determining your eligibility for a loan, including a mortgage. Basically, your credit score is like a financial report card that sums up your past behavior as a borrower. If you have a high score, it means you’ve been reliable in making payments on time and handling your debts. On the other hand, if your score is low, it means you have had problems in the past and are less likely to be trusted by a lender.

Since having poor credit makes you a high-risk borrower, lenders will either deny you a loan or compensate for the risk by charging a higher interest rate. That means having good credit is essential to finding low mortgage rates.

How Your Credit Score Is Calculated

There are five different criteria used for determining your credit score. Some are weighted more heavily that others, but all have a significant impact on your credit:

Payment History (35%): The biggest chunk of your score is based on how consistently you pay your bills. Late and missed payments will bring this number down.

Outstanding Debt (30%): How much debt are you currently in? The less you owe, the better.

Credit History (15%): The amount of time you’ve been using credit is important, too. Lenders like to see a long history of responsible credit usage.

Types of Credit (10%): Varying the types of credit you have (auto loans, student loans, credit cards, etc.) show you can handle a variety of debts.

New Credit (10%): It’s a bad sign if you’ve been opening several new lines of credit over a short period of time.

Tips to Improve Credit & Rates

Examine your current credit with the above standards in mind to figure out exactly how you can improve. Some things take time to fix, like payment history, but there are a couple of ways to make an immediate impact. If you really need to improve your credit, the best thing you can do is pay off your debts to reduce your credit-to-debt ratio.

Once your score comes up, you’ll be offered much better interest rates and terms. It take hard work to build and maintain good credit, but the effort is well worth it when you can afford your dream home as a result.