Hi John : The answer to HOW one might improve their credit score can easily researched by surfing the Internet (Google search on FICO). For starters, FICO stands for Fair Issac Corporation, the firm that developed the formula or algorithm to measure credit risk (yours and mine), the accepted standard in banking today. When people donâ€™t pay their bills on time (or not at all), their account status is reported to 1 of 3 credit bureaus, a source to tap when a person applies for credit like a home mortgage. The articles on these 2 respected websites will give you the answers to the question you posed.
Fair Issac: http://tinyurl.com/5bbznk
Now having said this, it is very important for you to understand that you should complete this process under the direction of a lender â€“in advance. Here are 3 pathways you could take.
1. Realtor Referral: Many Realtors have selected their own LENDERS to work with and may have a relationship that has existed for years. If youâ€™re Realtor has a long track record with a mortgage agent and conveys confidence and trust in them, that may be a great choice for you. This is the way I work. Since it is against both state and federal laws for either the banker or real estate agent to be paid for a referral, here is no fee paid for the business. Naturally, you should MEET (my bias) with the lender eye ball to eye ball to be sure you feel that you can work them. Be sure you bond. And you certainly want to assure yourself that their RATES are industry competitive. Outside of a credit report charge, there should not be any lender closing costs. Now there will be a fee for their service (commonly 1% of the mortgage amount when the loan closes) and that payment is split by formula between the mortgage agent and the lender. The Mortgage agent has to be paid so he can feed his family and the lender must cover overhead.
2. Lender Direct: the other choice is for you to find the lender on your own and follow the above process. I can NOT emphasize enough the importance getting someone to represent your interests that is seasoned and has some expertise. The Seattle Mortgage agent did a good job of addressing the mechanics of this process as well.
3. Procrastination: Yes, there is a 3rd alternative. Avoid it like the plaque. This is where we introduce the â€œearly bird gets the wormâ€ principle. Some people are absolutely convinced that whoever they know will get them a great deal because CREDIT is just NOT a problem. And if that is true, getting pre-approved NOW would â€œset your mind at easeâ€ (and also that of your Realtor -- who may have been driving you around showing homes you cannot (or should not) afford).
It is important to note that BEING READY to buy a home could be crucial. Say youâ€™re going to the lender on Monday (instead of 3 months ago and 40 houses later). Suddenly, you find that perfect home on Saturday morning. You want to make an offer (no pre-approval letter -- nuts). But we make the offer Saturday Evening and we explain that we will have the pre-approval letter on Monday. Sunday morning we are informed that another offer came in on the home. At 9 PM we are told they accepted that offer. Many times the terms of both offers are the SAME. But you have no pre-approval letter (the other party did). Bingo. Lesson time. The seller picked the strongest offer. I have been involved in several multiple offer situations where my clients offer was better (say by $ 4000), but the seller took the lesser offer with the pre-approval letter. Why? Sometimes, later on, we agents just never see those promised pre-approval offers. You do not have a strong offer without what is required to back it up. Would you sell your $500,000 home to someone who canâ€™t substantiate their financial position? The phrase in the Jerry McGuire movie I believe was "show me the money."