Mortgage companies use what is known as a FICO credit score, this is used to work out how much of a risk you are when considering you for a refinance loan. The lower your FICO score, the more risk you are, and so the more you will be required to pay when refinancing your mortgage.
There are lots of different ways to improve your credit rating before you apply for loans, this will save you money in the long run on your mortgage refinance loan. Here are a number of tips that will help you to improve your FICO score, and so get a much better interest rate for mortgage refinancing.
FICO actually stands for “Fair Isaac Corporation” This is named after the company that actually calculates your score. Fair Isaac actually looks at the contents of all of your credit report, and then put a numerical value on this information.
There are three companies that maintain credit records for you, and so you will have three different FICO scores. Before you look at refinancing your mortgage, you should ask for all the credit reports from each of the credit reporting agencies. You should spend some time reviewing these and checking that they are correct. Any errors could damage your credit score.
Any negative information that is contained in your credit report will make your FICO score much lower. There are of course other things that can affect your FICO score, including the length of time you’ve been in credit, the amount of credit you have available, collections, or any bad debts.
If you do notice any mistakes in your credit reports, it is vital that you notify the correct credit company. Make sure you allow the company enough time to correct the information, this will be able to improve your FICO score before you go to apply for a home refinance loan.
So how can you improve your FICO score before you go into mortgage refinancing?
Well it can’t be done over night, there is no instant solution to a poor credit score. However there are several steps that you can take to increase and improve our credit score.
* Pay bills on time
* Stop using credit cards so much
* Correct any negative information in credit reports
If you don’t pay your bills on time at the moment, then you should defiantly look at doing so. The FICO Score bases 35% of the score upon your payment history!
You should also reduce how much you spend on credit cards, try to make sure you’re not using all of the available balance.
You need to devote a lot of time to improve your credit score, you shouldn’t attempt to do anything until you are committed enough to spend at least 6 months doing so.
