When refinancing your mortgage, check your credit before contacting lenders or comparing mortgage rates. Today, the rate you pay depends on your credit score, so you’ll need that information to get accurate mortgage quotes from lenders. You’ll also want to see your credit report and scores in advance in case you need to correct inaccurate information.
Since 2008, Fannie Mae and Freddie Mac have priced their loans in such a way that saves those with good scores and low loan-to-value ratios a lot of money, but increases costs for those with less home equity and lower scores. In some cases, a single point on your credit score can cost or save you thousands!
How do credit reports work when you refinance?
Mortgage lenders usually purchase a report compiled from two or three of the biggest credit bureaus – Experien, TransUnion or Equifax. If just one of those bureaus has incorrect or outdated information about you, it will probably make its way onto your credit report.
Refinancing costs can change at 20-point intervals in your credit score. So everyone with scores between 640 and 659 falls into one pricing group, and folks with scores in the 660-679 range receive better pricing. You can see, then, that if your score is 659, it’s probably improving it to 660 before refinancing. A good loan officer or mortgage broker can help you sort it out.
How can you improve your credit score quickly?
You can correct inaccurate information by contacting your creditors and the three bureaus, supplying proof that the derogatory entry is incorrect. Or you can provide your proof to your lender and ask for a rapid rescore. Many lenders have access to companies called rapid re-scorers. For a small fee, these firms use their direct contacts within the credit bureaus to correct inaccuracies within a day or two. Your other option is to use a rapid rescoring company that works with consumers. This is more costly – about $90 per account changed – and it takes a little longer, about a week.
You can increase your credit score by paying your bills on time – even six months of clean history can help. You can also improve your score by paying down balances so that you’re using less of the credit that’s available to you. Pass up new credit offers and don’t apply for new credit.
You are entitled to a free credit report once a year from each of the three credit bureaus, and you can purchase your scores at www.annualcreditreport.com. You can also get a free credit score with a trial membership in the LendingTree Credit Monitor program.
Next step: Find the right refinance loan for your needs.