How To Improve Your Credit Before You Buy A Home

A minimum credit score of 620 is the new mortgage and real financing standard, any score below that will find it impossible to obtain the mortgage needed to purchase the property. If you have a borrower with less than ideal credit, here are some tips that can help to improve their score by the time they make an offer.  The following article was written to help first-time home buyers understand and navigate through their first real estate purchase.  For a free credit report request form, go to http://loangoose.com/wp-content/uploads/2010/03/Free-Credit-Report-Request.pdf

First the basics. There is a total of 5 divisions or categories of factors that affect one’s FICO score.  In order of percentage of score, those categories are Payment History (35%), Amounts Owed (30%), Length of Credit History (15%), New Credit (10%) and Types of Credit Used (10%).  Late payments, Bankruptcies, Collections and Tax Liens would fall into the Payment History category while credit inquiries and credit applications would fall into the Types of Credit Used category.

Your credit score is particularly important to mortgage lenders.  It can and will determine your loan approval, interest rate, and fees.Almost three-quarters of all mortgage applicants have a 650 credit score or higher.650 is considered low to avaerage while excellent scores exceed 740.Minimum FICO scores of 620 is the new standard in real estate financing.

There are really only 3 credit bureaus that count – Transunion, Equifax, and Experian.Each of the 3 Major credit bureaus product theor own scores based on the infomration that is available to them. URGENT .Make sure the information furnished to the credit agencies are accurate and the credit reports are cosistent with each other..Positive information can be presented to the credit bureaus to help increase the borrower’s credit score..You should always consult your mortgage consultant before making corrections to your credit report.  Not all corrections are positive.

Because the 3 bureaus generate their own score, mortgage professionals typically take the middle score to help determine your credit worthiness.That with the collateral (property or valuable asset) and the ability to repay the mortgage (income-to-debt ratio) are the main components lenders and mortgage companies consider when you are applying for a home loan.

Now that we know how much a bad score can cost us, how do we improve it?  Here are some REAL ways to improve your score so that you can obtain the best rates and terms possible:

1. Pay Down Your Account Balances – More often than not you do not have the money to pay off all of your debts.If you have available funds, pay down your credit card balances to 40% or below the actual limits..The 3 major credit card companies will calculate your improved score based on the decreased balances.
2. Always check to make sure the information on your credit report is correct. Clear up old and outdated information .. Get your report at http://loangoose.com
3. Open a New Account – A little caution here!  You can open new account, but you are not going to want to use it.You should plan any new account applications with your desire to purchase a new home.Your FICO score can be affected by mulitiple or excessive inquiries by numerous companies and industries.Multiple applications can appear that you are desparate for credit.
4. Get a ReScore – Your mortgage professional can and should be able to work with the bureaus directly to correct errors.  Once the errors or account balances have been corrected, the bureaus can update their info and your mortgage professional can order a ReScore to improve your credit position.  If you have any questions regarding ReScore, visit our site at http://loangoose.com. You can download a request for your free credit report to research your credit histrory and what could be affecting your score.

The REAL way to improve your score can take months.I have never met anyone who decided to buy a house overnight.  So while you’re saving money for the down payment on your home, improve your credit too.