If you are applying for a mortgage, you're going to have to deal with
credit scores. Here's a primer on credit scores and methods for
improving them.
Credit Report
Step one in the process is making sure that you have a current copy of
your credit report. Congress recently amended the Fair Credit Reporting
Act so that consumers may now receive one free credit report annually.
There are three major credit bureaus: Equifax, Experian, and
Transunion. Since entries can vary across bureaus, you'll want to
request a free report from each of the three companies. (Go to
www.annualcreditreport.com)
Credit Score
It's also imperative to know just what a good credit score is. Most
A-Paper scores typically begin around 680, although this number may
differ slightly among lenders. Don't despair if you come up shy, there
is always room for improvement. Increasing your score just 5 points can
save a significant amount of money. For example, if your score is 698
and you increase it to 703, then you could save yourself thousands of
dollars over time as a result of a slight improvement to your loan's
interest rate.
While credit repair is necessary for some, it is not the panacea to
increase your credit score. Even if you have stellar credit, you can
enhance your score through these steps:
1. Evenly distribute your credit card debt to change the ratio of debt
to available credit. Let's say you have a credit score of 665. If you
have debt on only one card, and four additional credit cards with zero
balances, evenly distributing the debt of the first card could move you
closer, and possibly into, that ideal bracket.
2. Keep your existing accounts open and active. The average consumer is
usually anxious to close credit card accounts that have zero balances,
but doing this can cause them to lose the benefits of a long-term
credit history and increase their ratio of debt-to-available credit.
The bottom line is don't close those old accounts!
3. Keep credit inquiries to a minimum. Each inquiry into your credit
history can influence your score anywhere from 2-50 points. When it
comes to mortgage and auto loans, even though you're only looking for
one loan, multiple lenders may request your credit report. To
compensate for this, the score counts multiple auto or mortgage
inquiries in any 14-day period as just one inquiry, so try and stay
within that time frame.
Remember, credit scores do not instantly get better. Improving them
requires time and diligent effort on your part, so it's a good idea to
start at least three to six months prior to submitting your application
for home financing.
If credit repair is what you need, you can either begin the process
yourself or seek out a repair service. If you decide to make your own
improvements, visit as many websites as possible to get information
regarding credit laws and consumer rights. Diligently search through
them and educate yourself to ensure that you don't sustain any
self-inflicted wounds. A good place to start would be the Federal Trade
Commission's website, which contains a plethora of helpful literature.
If you're facing severe or complicated credit issues, then you'll
probably want to enlist the assistance of a professional credit repair
company. Before you do, be sure to familiarize yourself with the FTC's
regulations on credit repair. With over 1100 credit repair companies to
choose from, it's important to be certain you are dealing with a
reputable firm. Examine the FTC's information on fraudulent practices
to avoid falling victim to credit repair scams.
Albeit, addressing credit issues can be uncomfortable. By taking these
steps now, however, you'll be that much closer to obtaining the home of
your dreams.
