Home Equity Loans and Rates: Always Clean up Your Credit First
Before you ever apply for a home equity loan, always clean up your credit report and increase your credit score first. Why? Lenders charge higher interest rates and extra points to people with poor credit. That’s just the way it is.
By increasing your credit score by just 10 points and presenting yourself as positive as possible, you could save yourself thousands of dollars in interest. Don’t you think that sounds like it’s worth the time and effort?
To improve your credit score, start by getting free copies of your credit reports. Equifax, Experian and TransUnion are now each required by law to provide you with one free report each year. But don’t contact them individually. They’ve jointly set up a website, toll-free number and mailing address to provide this service. To order your free report, you have three choices:
• Visit annualreport.com
• Call 1-877-322-8228
• Write to: Annual Credit Report Request Service
P.O. Box 105281
Atlanta, Ga 30348-5281
First check your report for correctible mistakes. Nearly 80% of credit reports have mistakes and 25% of them are serious enough to deny you credit or penalize you with a higher interest rate. Therefore, it’s a good idea to immediately contact the credit agencies in writing, give them specific details and ask that your report be corrected.
There are also some other simple things you can do to improve your score by as much as 100 points or more. You can usually complete these steps in about six weeks.
First, pay all your past due accounts. They lower your score. Then once you’re paid up, contact your creditors and ask them to remove all records of any late payments. If you’re persistent, you can usually get this done and it would make a huge difference in your score.
Next ask your creditors to increase your credit limits. If you have a good credit history with them, they’ll usually agree. But, be sure they won’t pull a credit report before granting your request. Recent credit inquiries will lower your score.
One last point! Never close old, inactive accounts when cleaning up your credit report. Recently closed accounts lower your score. It’s actually better to reactivate the account by making a small purchase and paying it off on time. Active accounts look good.
Follow these steps and you’ll have a much better chance of getting a loan and saving yourself some money in interest.