Getting Pre-Approved? Check Your Credit:
If you’ve been thinking of getting pre-approved to buy a home, now is the ideal time to review your credit.
According to the Federal Trade Commission, over 20% of credit reports are wrong and it is important to check your credit early so you have time to do something about it.
Lenders consider Four Key Things when prequalifying you for a mortgage and ultimately giving you access to financing:
- Credit – Intent to pay and the commitment to handling credit responsibly
- Income – This shows the ability to repay the loan
- Assets – Larger down payments show more skin and commitment in the game
- Employment History – Consistency indicates strength and continued income
If you know how, you can improve your credit. This helps in getting approved, obtaining better programs and accessing a less costly loan. It also expedites the process due to fewer obstacles to overcome.
Credit Scores Matter:
Most people don’t realize how much a good credit score can impact their lives.
Whether you are applying for a mortgage, purchasing auto insurance, getting a cell phone, opening a checking account or applying for a job, most likely your credit report will be considered.
If your credit score is low due to poor payment practices or incorrect information on your report, you may pay the price when you least want to. Even if you aren’t declined while applying, you will most likely pay much more for the credit or services you purchase.
Below are 10 things you can do to improve your credit score:
Erase the Dings: Contest entries that are incorrect or a result of identity confusion. Contact the creditor if you notice any errors. If they say no then you can go directly to the credit bureau reporting it. You can go on-line, pay for their report and contest the error. Sample Dispute Letter
Increase Your Credit Lines: Higher credit lines will improve your credit utilization ratio. This is the balance on the account divided by the high limit. Lenders like to see utilization under 50% and even lower. This should help improve your score significantly.
Pay Debt Off: Lower the total balance owed on each account. This is another way to lower your credit utilization ratio. Most bureaus like to see 30% ratios, but there are increasing benefits and score improvement the lower the ratios are: 50%, 30%, 10% and 0%.
Hire a Reputable Credit Repair Company: A good Credit Repair Company understands the Federal Credit Reporting Act, and knows how to use this bill of rights to fight for and protect consumers. Items may often be removed due to improper reporting.
Consolidate Debt: If you have multiple credit cards, consider consolidating cards with higher utilization ratios to cards with lower utilization ratios. There is often one card with a very high balance while another might be low. Get each card under at least 50%.
Check Your Credit Report Annually: Review for errors. The Federal Trade Commission found at least 20% wrong and consumers wrongfully paying higher interest rates. Incorrect addresses, spelling of name, and negative marks not yours may be disputed and removed.
On-Time Payments: Making on-time payments monthly is important to a high score. Pay a few days late and you might pay a fee, but pay 30 + days late and it will hurt your credit. 35% of the Credit Score is due to on-time payments. A little carelessness can cost big.
Be Patient: If you’ve had a major event, such as a bankruptcy or foreclosure, time is your friend. While these events should not hold you back after 7 years, it takes 10 years to fall off the report. Typically a collection takes 7 years and 180 days to fall off from initial late.
Protect Your Identity: Credit can be ruined quickly when your information is stolen. Accounts are opened in your name, negative activity occurs, and it is difficult to reverse. Review statements carefully and be cautious where you share your private info.
Start Building Credit in Your Own Name Early: A great way to start is as an Authorized User or a Joint Guarantor on a parent’s account. Be careful that it is not a card that regularly keeps a balance as the payment will need to go into your monthly debt responsibility.
Wondering where to start?
If this all seems overwhelming, or a little scary, just give us a call. The only way to know what your mortgage credit score looks like is to run a Mortgage Credit Report.
Free Online Reports are valuable in pointing out what is negatively hitting your credit, but they use different criteria then a mortgage report. If you’d like to know what rates are or what your score looks like, give us a call.