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New Mortgage Rate Could Help Boost Credit Score

By Sally Maison
Published: Wednesday, September 30th, 2009

Mortgage rates fell last week, which can help consumers meet their lending obligations better. The decrease is only minimal but industry experts say that it could go a long way if consumers learn to handle their debts better.

New Mortgage Rate Could Help Boost Credit ScoreLast week, mortgage rates went down to 4.94% from the other week’s average of 4.97%. The decrease is seen by lending analysts as a huge improvement compared to sub-5% levels in May.  However, it is not enough to stir up activities in the debt sector.

Instead, the borrowing activity fell down this month. The weekly survey of the Mortgage Bankers Association reveal that applications for refinance loans went down 0.8% this week while new mortgages decreased by 6.2%. Moreover, lending standards were raised by most lenders, including government sponsored enterprise Fannie Mae.

Analysts say that creditors aim to keep debt-to-income (DTI) ratio below 45% through higher lending requirements. It is part of the strategies by financial firms to prevent risk levels from going beyond their control, experts say. They also tell consumers to expect many creditors to deny their loan applications if their DTI exceeds 49%. Analysts comment that consumers who spend at least half of their monthly income paying debts are considered high-risk clients.

The best development though came from the decrease on 15-year fixed-rate mortgages which went to 4.34% from the previous week’s 4.41%. This is the lowest rate that long term borrowers have seen since 1972. Industry analysts project better percentage in the coming months if the market remains stable. They also see better credit scores for many consumers in the near future, adding that prudent debt management, which keeps the borrowing activities low, will prevent borrowers from racking up more debt than they can pay.

However, finance analysts see a downside to the decrease in borrowing patterns. They believe that it can hamper the country’s progress towards overcoming recession. A lethargic economy, they say, will only result in slower recovery.

Experts advise consumers not to be too frugal or too wasteful with their finances. Evaluating how much money one has and what he immediately needs can help a person decide whether to go for a loan or not, they say. They also add it is best for consumers to check their credit scores regularly to see how well they are managing their debts.

Finance experts point out to wise debt management as the best way to boost credit score. They add that meeting credit obligations well is what impresses lenders most.

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