At least once a day I am contacted by someone who holds the belief that
they may never have good enough credit to buy a home. Although each
conversation is different, it's truly amazing how similar the stories
have become. If you are one of those millions of Americans whose credit
has taken a beating due to a loss of a job, divorce, health problems or
you just haven't taken your credit obligations responsibly, let me give
you some encouragement. Even the best of us have had some credit issues
at one time or another. Whether you're millionaire or just a plain ole
regular Joe, somewhere down the road you will need to get a loan for
something. So taking a little time and improving your credit score even
by just a few points just might
seal the deal and help you succeed in getting your home loan approved
and could ultimately help reduce your interest rate by a half percent or
more. Hereâ€™s how to do it.
your credit score by just a few points just might seal the deal and
help you succeed in getting your home loan approved and could
ultimately help reduce your interest rate by a half percent or more.
Hereâ€™s how to do it.
Rule #1- Check your credit report regularly
for errors that can lower your credit scores. Remember, every consumer
receives one FREE Credit Report
from the 3 major credit bureaus once a year. This enables you to
monitor your credit for 30 days giving you the ability to dispute
Rule #2- Pay down those high balances on your
credit cards, this alone can improve your credit score relatively
quickly. Shifting balances from one card to another doesnâ€™t work
anymore. The credit score modeling system is setup to look at your
Rule #3- Pay all revolving credit accounts before the statement cutoff
date, not after the statements come in. This is a common mistake, and
could make the different in getting your loan approved or having your
Rule #4- If you canâ€™t pay down your balances
significantly, as least pay more than the minimum payment due on your
Rule #5- Know when your credit card statements
posts. If at all possible, pay your balances in full each month before the due date. Itâ€™s a
myth that credit scores are higher for people who carry balances on
their accounts. That is a fallacy to get consumers to remain debtors in
hopes of gaining interest revenue they bring in.
Rule #6- Two cards are better than one and three
are better than two, but don't go crazy!Â If you have just one credit
card, your credit history may be viewed as too limited or in the event
of a mishap, where a late payment is reported on your credit account,
it will have a greater negative impact.
Rule #7- Donâ€™t open any new accounts if you plan on
starting the home loan process in the next 30-60 days. That account
will not have sufficient time to rate. Be proactive not reactive. Be
patient, doing the homework upfront will save you thousands in lender
fees and higher interest rates.
Rule #8- Never ever go over your credit limit.
Always stay at or slightly below your limit. This is also a common
mistake that consumers make. They charge their credit cards up to the
limit then are either hit with a late fee or annual membership fee.
This inevitably happens when you least expect it.
Rule #9- Increase your credit limits if possible.
Those consumers with secured credit cards, add to your deposits. By
increasing your limit, your current debt becomes a smaller percentage of
the total credit available to you. That alone will help raise your
score. Do not in turn, charge up your credit card account again to the
new higher limit, your score will tumble once again and youâ€™ll be
deeper debt and will have defeated the purpose.
Rule #10- Borrow from banks rather than finance
companies when at all possible. Customers of finance companies are
generally are charged higher rates and fees and thought of as a
slightly higher risk.
Rule #11- Use your debit card rather than your
credit card. Force yourself to be more frugal.Getting back to basics
should be the new American Dream!
Rule #12- Be sure that the credit bureaus remove
any derogatory information thatâ€™s older than seven years and a
Bankruptcy that is older than 10 years. This should happen
automatically, but sometimes you just got to stay alert.
Rule #13- Canceling unused cards is a bad move and will not raise your
credit score. In fact, it will lower the score. Thatâ€™s because having
fewer credit cards increases the ratio of your debt to your open credit
Rule #14- Before you go out and start disputing old
collections and charge off accounts beware of this warning. This could
come back to haunt you. By disputing an old collection or charge off
that hasn't rated to the credit bureaus in years actual will hurt your
scores if they come back and verify the debt. The scoring system will
actually read that line item as a new or updated collection, most
likely with a higher balance. Bad move! If a lender really requires a
borrower to payoff a open collection or charge off, ask the lender to
accept settlement of the debt through the escrow process. This will
reduce the chance of the credit score dropping in the 11th hour causing
your loan to be denied. With the changes in lending guidelines, more than likely you will need
to remove any disputed line items on your credit report even if it has
been paid. It's not like the old days when a disputed items meant it
could be overlooked. Those days are gone.
Final Rule- Never ever ever cancel your oldest
credit card(s), this could be really a costly mistake. Longevity is a major factor in the credit
scoring system. Accounts with longer payment histories flag your file
as an experienced user of credit, not an abuser of credit, which is
exactly what lenders are looking for. Good Luck!