04/03/2020: How to Improve Your Credit


In our last blog, we discussed how low mortgage rates and home supply would affect housing prices. It’s important to note amid the current pandemic that the outlook has somewhat adjusted. There’s good reason not to get discouraged. Because of the hardships many will face, Citizens Bank Analysts believe mortgage rates will fall from already record lows. Check to see how rates are being affected in your area. 

How Do You Improve Your Credit?

Today, we’re going to talk about how credit scores influence your mortgage offer. Many different factors go into determining the house you’re able to afford. Your income, savings, and down payment, for example, all play a big role. Credit is perhaps the most important factor when buying a house. 

Credit scores affect the type of mortgage loan you’ll be eligible for. In general, higher credit scores lower your interest rates and down payment. Regardless of your current credit score, Citizens Bank is here to help establish goals, along with a detailed plan, so that the house of your dreams is within reach. 



How is Credit Determined?

Your credit score is determined by payment history, how many credit accounts you have open, how much credit you’ve used against how much is available, and how long you’ve been using credit. In general, the longer you’ve used credit, the more purchases you’ve made with credit, and the better your payment history, the higher your score will be. 

The first step is to know where you stand, which means calculating your credit score. You can calculate your credit score at any number of credit rating agencies, but there are different kinds of credit scores, so you’ll want to calculate the credit score that affects your mortgage loan. Additionally, it’s best to pull your credit score from more than one agency. As you’ll see below, mistakes can be made, so it’s always wise to get a second opinion! 

Our mortgage experts at Citizens Bank will also simplify the process so you can focus on what’s relevant to buying a home. 



How Does Credit Affect Your Mortgage Loan?

As mentioned earlier, credit scores affect mortgage loans by determining the down payment on your house and the interest rate you’ll pay on monthly payments. The latter is particularly important. It might seem like a small difference, but an increase in interest can make a huge difference in total payments on your mortgage over time. 

But how, exactly, does credit affect your mortgage loan? In addition to the type of loan you’re eligible for, credit scores determine the interest rates applied to that loan. 



Improving Your Credit

There are many things you can do to improve your credit score

Once you receive your credit score, the best way to make immediate improvements is by checking for errors. Some credit reports show late payments that were in fact paid on time. Should you find any errors, you’ll want to inform the responsible credit bureau. Also, make sure these disputed accounts are settled before applying for a mortgage! Disputes themselves can lower credit scores.  

The next one is as simple as it is important: make your payments! Better yet, make them on time. The more you’ve paid down on your credit prior to applying for a mortgage loan–and the more payments you’ve made on time–the friendlier the mortgage will be. Timely payments on credit prove an ability to make mortgage payments on time. The easiest way to keep up with payments is to avoid spending beyond your means, which keeps payments low. 

Lastly, don’t close your credit accounts. It may seem backward to keep open credit accounts that you’re not using, but credit scores are based largely on the amount and types of credit opened. By keeping credit accounts open in addition to making payments on time, you improve your score.