Mortgage Rates are Rising. Here’s Why Your Credit Score Matters and 5 Ways to Improve It

The cost of just about everything has been going up, from gas to clothing to food. Interest rates are rising on borrowed money, including both credit cards and loans. If you’re looking to buy or refinance a house in the near future, you may be concerned with the fact that mortgage rates are rising. Here’s why your credit score matters and 5 ways to improve it.

Why Your Credit Score Matters

Whenever you apply for credit, a potential lender pulls your credit report, looks at how you’ve handled credit up until now, and notes your credit score. Your credit score is a three-digit number that lets lenders know at a glance whether you’re likely to be a risky borrower.

Your credit score matters because the best rates go to the borrowers with the best credit scores. If you have a low credit score, you may not be approved for a mortgage at all, or you may be approved only with a high-interest rate. A high-interest rate means you’ll pay thousands of extra dollars toward interest over the life of the loan.

5 Ways to Improve Your Credit

If you know your credit needs improvement, it’s a good idea to work on bringing it up before you apply for a mortgage. Ways to improve your credit include:

1. Catch up on past due payments. Past-due accounts need to be brought current as soon as possible before you apply for a mortgage. While past due accounts affect your credit score for years, their impact lessens over time.
2. Pay bills on time. If you aren’t already in the habit of paying bills on time, make sure you do so going forward. If you sometimes forget to pay bills on time, sign up for alerts from your bank.
3. Pay down overall debt. Work on reducing the total amount you owe. Consider picking up a side hustle to increase the amount you have available to pay off debt.
4. Avoid applying for new credit. Once you’ve decided you want to apply for a mortgage, don’t apply for any other new accounts. Try to avoid making additional purchases on your credit cards.
5. Correct errors on your credit reports. Many people are surprised to find errors on their credit reports. Take the time to review what’s on your credit reports and dispute anything that’s inaccurate, such as payments reported as late that were not paid late. It’s especially important to dispute any accounts that are showing on your credit reports that you don’t recognize. Accounts you don’t recognize could be a sign of identity theft.

Being proactive about your credit before you apply for a mortgage can give you the best chance of approval at an attractive interest rate and loan terms. Reviewing your credit report ahead of time helps you to avoid any unpleasant surprises when your credit is pulled. Dovly is an AI credit engine that can help you dispute any errors you find on your credit report. Try it risk-free with our free membership tier. Get in touch with Dovly today.