Surprises are often a lot of fun, and who does not like a pleasant surprise? But there is one time that you do not want any unexpected information. Unanticipated data from your credit report is one of those times when a surprise is just not worth it. And especially if you are about to refinance your mortgage. Imagine verbally providing the lender your information as you believe it to be, then she runs a credit report and finds that it is different from your rendition of the circumstances. Now, you have to back pedal trying to figure out what went wrong. So, the obvious moral of the story is always check your current credit score well before applying for a new home loan.
In the US, three companies are responsible for creating your credit score. Equifax, Experian, and TransUnion all gather personal information, as well as your payment history or habits, in order to determine the final score which is a number between three hundred (300), being the worst, and eight hundred and fifty (850) as the best score possible. By knowing this number in advance and by understanding the notes in your file, you can better position yourself when negotiating a mortgage refinance.
One of the benefits of having a higher credit score is the interest rate on the home loan. Usually, the lower the score, the higher the interest. This only stands to reason as individuals with low scores tend to be higher risk clients. In addition to the score itself, if you check your report before applying for a mortgage, you can usually fix any errors or omissions that may occur.
Also, by checking your current credit score, you may find that it is high enough that you can choose a different type of mortgage. For example, let us assume that you had poor credit or a bankruptcy when you obtained your original mortgage. As a result, you found a hard money lender who only offered mortgages with monthly interest payments. Obviously, other than what you deposited or had originally as equity, you are not building up any more equity in the house. But if you have been able over time to correct or ameliorate your credit situation, and you now have a higher score, then you may be able to refinance your mortgage with a traditional lender and at a better refinance rate. Thus, you will begin to build a little equity. Once you’ve built up that equity, and you reach the right age, you can consider a reverse mortgage.
Another point of which you should be aware when checking your credit score is that if you consistently try to get credit throughout the year, it will be a detriment to your overall financial picture. If you have applied for many credit cards during the year and have spent months trying to refinance a home loan, all of that information suggests that you may have financial problems. Too many credit inquiries can penalize your score. Therefore, if you are in the process of refinancing a mortgage, try to do all your comparisons and shopping within thirty days.
Finally, remember that one free report per year per credit bureau is allowed, so it is always beneficial to check your current credit score.