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Improve Your Credit Score Before Buying A Home
By Roselind Hejl
Several months before you begin to look for a home, you should take steps to get "credit approved" for your loan. Start by making a list of all your existing loans and cards, with the company names, account numbers and monthly payment amounts. This will help you to analyze the information shown on your report. Include all closed loans and cards if these records are available. 1) Get a Financial Check-Up Make an appointment with a good mortgage lender, and request a full approval. As a part of the approval process, your report will be ordered. It will include data from the three main reporting agencies - Equifax, Experian, and Trans Union. The report will show three scores - one from each agency. The interest rate and type of loan available to you is related to your score.
The assistance of a mortgage professional to help you to understand your report and offer suggestions on how to improve your score is invaluable. For the average person, interpreting a report and dealing with errors is a daunting task. reports are filled with frustrating jargon and codes. They are not written for the general public to read. Even more intimidating is the task of communicating with agencies to dispute or correct information. 2) Correct Mistakes Credit reporting agencies often have mistakes in their data. The information in your file is input by computers. A computer weighs your data using complicated mathematical formulas to arrive at a score. Nearly everyone has paid bills late for one reason or another. Perhaps a bill was sent to a wrong address, or you have had a dispute with a vendor. It is likely that you have some issues on your report that should be disputed or corrected. Each of the websites of the three main agencies has a dispute resolution page. Feel free to use it. 3) Deal With Real Issues You may have had serious problems at some point in the past. Reviewing this may be emotionally draining, and will bring up the underlying situation that caused the problems. Get advice on how long the issues will remain on your report, and how to re- build your worthiness. Or, you may have a persistent habit of overspending. In this case, you should talk with a financial advisor or personal counselor to help you work out of debt, and establish better habits. The National Foundation for Counseling offers low cost assistance for serious problems. If you place yourself under their supervision to handle your debts, you will not be able to obtain new during the work-out period - which may be years. Before doing that, ask a mortgage lender or financial advisor if there is a way to redeem your without their supervision. 4) Check Your File A law, passed in 2005, requires the three main agencies to provide a free file disclosure each year. It has been suggested that you could order a file from the first agency in January, one from the second in May and one from the third in September. The central site where your file can be ordered is annual report dot com. The purpose of this law seems to be to help people find out if they are a victim of identity theft. This enables you to monitor your file for any new that did not come from you. If you take advantage
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of the free file reports, you should check them for mistakes. Use the report that you reviewed with your mortgage lender to compare with the data in your file. Keep in mind that the free file disclosure is not a report. It does not include a score. 5) Understand Scores Less than 620 - Poor 620-680 - Average - You may need to put more cash down on your loan. 680-720 - Good 720 - 800 - Excellent 800-850 - Seldom seen 6) Play by the Rules The information in your file is scored by these factors: 35% - Payment history - Paying bills on time is very important. Today many people use auto draft or pre-written checks through online banking to pay bills. These help to prevent late payments. If you want a good score, do not pay late! 30% - The relationship between your available versus how much you have used is an important factor in your score. If you are over 50% drawn against your available credit, this will count against you. For this reason, it helps to keep old card accounts open, even though you do not use them. They build up the total amount of available to you, relative to what you have charged. 15% - The length of history on each loan has an effect on your score. A more seasoned loan is scored higher. For this reason it is not a good idea to open cards offering low initial rates, then close them after a few months and open new cards. 10% - The number of inquiries made on your report affects your score. Each time you open a card or new loan, your information is pulled. Keep these to a minimum. A recent law has made it possible for people shopping for homes or autos to have multiple inquiries, from the same industry (mortgage or auto), done over a 30 day period without penalty. However, to be on the safe side, do not allow your report to be pulled unless absolutely necessary. 10% - The types of used may hurt your score. Loans from finance companies, signature loans, furniture loans and some retail store loans are considered a poor judgment because of their high rates, and may count against you. 7) Improve Your Score It is easy and necessary to borrow money. We customarily make everyday purchases using cards, and set up loans for homes, cars and other purchases. Your score is especially important in the purchase of your home. It will affect the type of loan available, down payment required, and interest rate charged. A low score can cost you thousands of dollars in additional interest over the years. Even insurance companies factor your score into their decisions. More than ever, you need a good score, or you will pay the price. Finance providers, rental agencies, car dealers, insurance companies and card companies are not going to help you improve your score. In fact, they have an economic interest in charging you a higher rate. It is up to you to be proactive about understanding and improving your own score. A good time to start is when you begin the mortgage approval process for a home purchase. It is a good habit to have. --------- Roselind Hejl is a Realtor with Coldwell Banker United in Austin, Texas. Her website - http://www.weloveaustin.com - offers homes for sale, market trends, buyer and seller guides. Let Roselind help you make your move to Austin, Texas.
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