If you've ever tried to get a home loan but your credit wasn't great, you know how much more you have to pay. Even though it can take a while, it's worth it to try to fix your credit.
Scores for credit
A financial institution will look at your credit and give it a score when deciding whether or not to give you a home loan. In the business world, these scores are sometimes called a kind of paper. The best scores are like a "A" paper, and the lower scores are graded the same way as in school: "B," "C," "D," and "Oh, my god" paper. You can expect to get the best deal if you have a "A" paper, while people with lower grades are called "sub-prime borrowers."
Fix your credit
Credit repair is important because even small changes in your credit score can move you from one score to the next. If you switch from B paper to A paper, the lower interest rates will save you thousands of dollars. A paper is given to someone with a credit score of about 680. If your credit score is 670, fixing it can raise it to 685 and save you tens of thousands of dollars. In short, you should do what you can to fix your credit whenever you can. Don't just suffer because you have a sub-prime loan.
There are easy and not so easy things you can do to fix your credit. Let's look at some of them.
Rates of credit card debt
Even if you don't believe it, you can improve your credit score by moving the balances on your credit cards around. If you already have a credit card that is full, having a credit card with no balance won't help you much. If you spread the debt across all of your credit cards evenly, your credit score should go up. This has to do with how much debt you have compared to how much credit you can use. It's a sort of loophole, so use it to your advantage.
Closing the Books
Don't! When they are done with a credit card or other loan, many people close the account. This is a very bad idea. First, it hurts you because you have less credit available, which hurts your ratio of debt to credit available. Second, you lose a record of your account's long-term credit payment history. Lenders like to see these, so don't be a baby and close the account.
Inquiries
Even though it sounds strange, inquiries on your credit report are bad for you. Try to get rid of these by using the Fair Credit Reporting Act to dispute them and limiting the number of credit applications you fill out. You can dispute inquiries by getting copies of your credit report and following the instructions on the report. Make sure to do this for all three credit reporting agencies, which are Equifax, Experian, and Transunion.
Look at your report.
Congress needs to hear from the big three credit agencies every year. They report a huge number of problems with their systems every year. This can hurt you because accounts that aren't yours will show up. If there are problems with any of these accounts, your credit score will go down. Check your credit report before you apply for a loan. You should take care of these things before you go into escrow.
It can be scary to borrow a lot of money for a home loan. Don't act like a deer caught in a car's headlights. Take care of your credit problems and you'll save thousands of dollars in payments.
