There are things that you may not be aware of if you have not obtained a credit report in a while. So if you don’t have a recent report you can get one report once per year at Annual Credit Report. If after you have got a gotten report and everything is all clear you can go back and buy your 3-credit scores. The Reason we recommend this is if you pull your own credit report it is considered a “soft pull” and does not impact your score. If one or many mortgage companies “hard pull” it then as you will see below your score can suffer. So you want to keep inquiries to a minimum. We only deal with companies that will shop for you and only pull your credit once to keep your score intact.
Credit score if 2 out of 3 of your scores are above 640 then you are most probably ready to start the qualification process located here and of course, you can always contact us and we would be happy to discuss your individual situation with you.
Now if your score is less than 640 then you may still be able to get a mortgage in some cases but the following items will help you get that score up to increase your changes.
If your score is already above 640 you will want to keep reading to get the score even higher and you may qualify for a lower rate and a easier loan process as your loan is underwritten.
Parts of your Credit Score
Your credit score is like a report card or test score and like a test score it can open doors for you or close them. A credit score also has a lot to do with the price you pay to borrow money (you car or truck loans, your home loan, apartment leases, business loans, personal credit cards and so on). Probably the biggest part of your credit report is your credit scores. In the United States, scores range from 350 to 850, with 850 being the highest you can get and 350 being the worst score you can receive. To make up your score there are 5 pieces or “test sections” that are included to determine the final score.
Credit Score Part 1 – Your Payment History: 35% of your credit score
Paying your debt in full and on time has a huge positive impact. Collections, Late payments, judgments, charge-offs, Late Payments and Bankruptcies that have occurred in the last 7 years, all seriously impact your credit score for the worse and will seriously stop you from borrowing or getting new credit. Also judgments in the last few years. For judgments, it is important that they be paid off and you receive a “satisfaction of judgment” from the county court where the Judgement was filed. If the Judgement that is unsatisfied or recent will not only make a huge dent in your credit but can completely stop you from getting a mortgage. Most judgments and personal liens (such as IRS liens) usually need to be paid before your loan can get approved.
If you currently have a Mortgage then paying it on time is has a huge impact on your score and it one of the most important items that mortgage lenders look at when judging your credit history. Even a single late mortgage payment in the last year can stop you from getting a home loan or mean the difference between you getting the best rate or getting a much higher rate. Also the payment history on other credit accounts such as credit cards and car payments are also given significant weight.
The Credit bureaus use the number of late payments and if they were 30, 60, 90 or 120 days late or if the accounts are in default. Default is the worst for your credit score. In addition the credit bureaus look at if the late payments were continuous. One or two 30-day late payments with no other negative items can hit your score up to 100 points. This also will give you a difficult time getting over the key 700 credit score. Here are some practical steps you can take to increase your score in regards to Payments:
- Pay everything on time.
- Any Late payments on accounts will ruin your score. The past due accounts need to be brought current as soon as possible. Get them paid before they go to a collection.
- Get frequent updates for your credit report and review for accuracy. If you have bills that are disputed make sure they are not hurting your scores. When qualifying for a home mortgage in many cases you cannot have any disputed accounts.
- Credit Utilization or your available credit vs how much you are using. How much you own is hardly a factor. You generally get score improvements at 70%, 50%, 30% and the biggest boost at 10% utilization of your credit limit. Believe it or now you get a greater score boost if you carry about a 10% of the limit because it shows to the credit bureaus that you are responsibly and regularly using credit. Maxing out your cards will hurt you score.
Credit Score Part 2 – Type of Credit that you have open: 10% impact on your credit score.
When building a credit history and your are planning on buying a home in the future, it is good to open a few credit accounts with small balances on them. A new account will lower your score initially the longer the account is open with good history you score will begin to increase.
There are three easy steps you can do to improve your score here:
- Don’t concentrate
- Don’t close
- Increase limits
First – Don’t concentrate the types of credit you have – or in other words you want to diversify the type of credit accounts This can be 10% of your score
Having a mixture of installment loans like a car loan, leases, mortgages and revolving credit cards is the best strategy and can increase your score. If you have too many of one type of credit it’s not considered a good thing. The best way to improve the score in this area is to have a good mix of credit cards, car loans and mortgage is better than just having credit cards. How many credit cards should you have. It is recommended you have between 3 and 5 credit cards of different types such as store, gas and revolving accounts like AMex, Visa, Discover, Master card & etc.
Contact the credit card companies and try to increase your available credit limit if they can do so without pulling a new credit report.
Second – keep your accounts open
Unless there is a very good reason you do not want to close your credit accounts. It is much better to have a lot of open accounts with little or no balance on them than to have 1 or 2 accounts regardless of the balance.
As much as 15% of your score is related to how long your credit accounts have been open. The longer an account has been open the more score boost you’ll receive. However with new accounts it may actually bring your score down until you’ve developed some history with that account.
Before you jump on that latest 0% credit card limit or opening a new account just to get a discount at the register in a store.
Third – Increase your limits or lower your balances
Keep your balances spread among your accounts. Don’t have your high balances on just a few accounts. Reduce your debt on some cards to as close to zero and then spread the remaining balances across all of your open accounts. For the biggest score boost keep your balance below 30% of your credit limit but if that is not possible get it to 50% or less of your credit limit on each account.
Credit Score Part 3 – Recent Credit inquiries made by creditors 10% of your score
Many people are under the false impression that when shopping for credit it’s good to get your credit checked numerous times. This is true to a point. Inquiries for one type of credit such as Mortgage, Auto or credit card do not impact your credit if down within a 14 day period. Outside of that window it will impact your credit score for a period of up to one year. Many people who were purchasing a home continued to get their credit checked and when the credit refresh is done just before closing find that they have lost points and had their loan denied.
- Don’t allow your credit to be checked for any reason after the 1st 14 days
- Don’t apply for a lot of credit at the same time
- Don’t Apply for any credit 90 days before applying for a mortgage.
Summary: We hope by following these steps you can get your credit score where it needs to be or higher to get a better loan. If you would like to schedule an appointment to speak with us about your situation feel free to contact us through our contact page.