So people will ask me, “What can I do to ensure that I get the best interest rate possible?” There are a couple factors that greatly affect what the interest rate might be, and I’ll cover them for you right now.
How Your Down Payment Affects Your Rate
The first thing would be your down payment. Depending on what type of loan you do, down payment can be a big factor. With conventional loans, they actually have better pricing the more you put down. So if you’re a first-time homebuyer, you can put as little as three percent down. If you already own a home, you can put as little as five percent down. But the more you put down, the better the interest rate looks, and they give breaks all the way up to 40 percent down payment.
Now obviously, this isn’t always the easiest option. If you’re doing a low down payment, it’s not like you could just go put a plan together to put 40 percent down and get the best rate. So the other factor in this is your credit score.
How Your Credit Score Affects Your Rate
The higher the credit score, the better the rate is going to be. The lower the credit score, the worse off the rate is going to be. As far as your credit and what greatly affects you, there are a whole lot of things that go into a credit score, but some of the biggest factors are going to be derogatory accounts—things like late payments on an account, collection accounts, prior bankruptcies, stuff like that.
If you don’t have any late payments, that’s going to be best for your credit. If you do, you just have to work on fixing them. For example, with late payments, there’s no quick fix. You just have to let those fall farther into the past. The farther they get in the past, combined with new positive credit history, the better it makes your credit.
Collection accounts also hurt you. You can actually attempt to get rid of them by calling the creditor or the collection agency and offering to pay and settle it, but only if they agree to delete the collection. Deleting the collection is a big factor because they’ll actually remove it from your credit report, as if it never even existed. If you simply pay it off, it’s still going to show as a collection. It’ll just show as a paid collection. If they delete it, though, it’s like it never existed, which gives you a nice boost in your credit.
Credit card balances are another thing you can focus on. The higher the percentage of your credit limit that’s taken up by your balance, the lower your score is going to be. You typically want to keep your credit card balances under 30 percent. If you go over 30 percent, you usually take a big hit. So you want to keep them as low as possible, keep your payments on time, and make sure you’re not carrying too much of a balance.
If you do all this stuff, it can help boost your credit. Like I said, some of these are not quick fixes, like late payments, but some of them are quick fixes. For example, if you have the ability to pay down some of your credit card balances, you can get those down pretty quickly, and within 30 days you might see a shift in your credit score.
So if you’re out there shopping, there are some things you can do. Focus on maybe putting together a little more of a down payment, maybe fixing up a little bit of your credit while you’re shopping, and then working toward getting a better interest rate. If you have any questions on tools that can help you ensure you’re getting the best pricing, feel free to reach out and give me a call. Thanks.
