PARAMOUNT MORTGAGE - LENDER'S BLOG

“Your credit score affects how much you’ll pay for a mortgage or refinance...or even if you can get one at all,” says finance author and real estate expert, Gwen Moran. She offers six valuable tips to keep your credit score high.

1. Postpone that refinance until your credit is squeaky clean

Even a small blemish on a credit report can cost you at closing. Money expert Denise Winston has a personal example: Her husband hadn’t paid a $40 pager charge. The unpaid bill was turned over to a collection agency and ended up damaging his credit score.

Subsequently the interest rate on the couple’s mortgage was 0.25% higher than if he’d had a clean score. Not paying that $40 pager charge will cost more than $13,000 over the life of their loan.

2. Pay your mortgage...now!

Almost nothing hits your credit score harder than a late mortgage payment. Payment history generally accounts for 35% of your credit score. Credit score agencies consider late home payments graver than late credit card or car loan payments.

In fact, credit score agency VantageScore will knock off more than 100 points beyond what it would do for delinquent auto loans or credit cards.

3. Cool it on second mortgages and HELOCs

Drawing down a second mortgage or HELOC can have a negative impact on your credit score. The reason is 30% of your credit score is based on how much you owe to creditors. “Pay the loan on time, it will have less of an impact,” states Winston.

4. Protect your mortgage to protect your insurance rates

Home owners and automobile insurance rates are adversely affected by late mortgage payments. This could cost you “hundreds of dollars a year,” says Williams. Insurers may assume you’re strapped for cash and more likely to file a claim just to get the money.

5. Pay your utility bills and property taxes on time

Late utility bills when reported to credit bureaus will cause a drop in your credit score, says Winston. The good news is that utility companies often don’t bother to report late bills until your delinquency becomes serious.

Interestingly, late payment of property taxes won’t affect your credit score unless you find yourself with a lien on your property. Since liens are public records, they may appear on your credit report and might cause a drop in your credit score.

6. Refinancing? Beware of taking out equity, too

Refinancing your home generally won’t have an impact on your credit score as long as you continue to pay your loan on time, says Williams. However, if you extract equity in the deal, you could marginally affect your credit score because the amount you owe will increase.