Get a Lower Interest Rate with a Better Credit Score

First things first

Get a copy of your report and review it thoroughly. Any errors, such as outstanding balances that have already been paid should be removed from the report – the credit bureau is obligated to make corrections within 30 days of your request.

The past two years are critical

While your overall credit history is important, your score is based primarily on the past two years. This means that you are better off paying past due balances and charge-offs that occurred in the past two years than older items. Generally, anything more than two years old will have little to no effect on your current score; in some instances paying older items can actually lower your score.

Credit Card do’s and don’ts

If there are items on your credit report that are less than two years old, send in your payment and note on the back of the check as follows: “By accepting this check you affirm that this transaction is complete and that this charge will be deleted from my credit record.” The cancelled check serves as proof that this item should be promptly removed from your credit report if it interferes with the closing of your loan.

Don’t close existing credit card accounts that you don’t use. These accounts make up your credit history. You want to keep all credit card balances as close to zero as possible. If possible spread your debt over multiple cards. Always keep the amount owed below 30% of the available credit limit. Consider requesting an increase to your credit line to improve the ratio of debt to available credit.

For those married couples that have separate credit card accounts, debt may be transferred from one spouse to another to clear up credit issues. The spouse with clean credit can then be designated as the sole borrower on the loan, while ownership of the home can still be in both names.

Bottom line

Pay bills on time. Don’t open new lines of credit when you’re being reviewed for a mortgage and pay attention to your credit report. It will determine the rate you’ll be paying on that new home or the mortgage refinance.

William Iven