You will have to deal with credit scores if you want to get a mortgage. Here is a quick introduction to credit scores and how to improve them.
Report on credit
First, make sure you have a copy of your credit report that is up to date. Congress just changed the Fair Credit Reporting Act so that people can now get one free credit report every year. Equifax, Experian, and Transunion are the three biggest credit bureaus. Since entries can be different between bureaus, you'll need to get a free report from each one. (Visit www.annualcreditreport.com)
Score for credit
Also, it's important to know what a good credit score is. Most A-Paper scores start around 680, but this number can vary slightly from lender to lender. Don't give up if you're shy; there's always room to get better. If you raise your score by just 5 points, you can save a lot of money. For example, if your score is 698 and you raise it to 703, the slight change in your loan's interest rate could save you thousands of dollars over the life of the loan.
Some people need to fix their credit, but it's not the only way to raise their credit score. Even if you already have great credit, you can improve it with these steps:
Spread your credit card debt out evenly to change how much debt you have compared to how much credit you can use. Say that your credit score is 665. If you only have debt on one card and four other cards with no balances, spreading the debt on the one card out evenly could get you closer to, or even into, that ideal range.
- Don't close the accounts you already have. The average consumer is eager to close credit card accounts that have no balances, but doing so can cause them to lose the benefits of a long-term credit history and raise their ratio of debt to available credit. In short, don't close down those old accounts!
- Don't check your credit too often. Anywhere from 2 to 50 points can change your score every time someone looks at your credit history. Even if you only want one mortgage or auto loan, more than one lender may request your credit report. To make up for this, the score counts multiple auto or mortgage inquiries in a 14-day period as just one inquiry, so try to stay within that time frame.
Remember that your credit score does not improve overnight. Improving them will take time and hard work on your part, so you should start at least three to six months before you apply for home financing.
If you need to fix your credit, you can either do it yourself or find a service that does it for you. If you decide to do your own repairs, visit as many websites as you can to learn about credit laws and your rights as a consumer. Search through them carefully and learn as much as you can to make sure you don't hurt yourself. The website of the Federal Trade Commission is a good place to start. It has a lot of helpful information.
If your credit problems are serious or complicated, you may want to get help from a professional credit repair company. Before you do, make sure you know the rules about credit repair set by the FTC. There are more than 1100 credit repair companies to choose from, so it's important to make sure you're working with a good one. Look at the FTC's information on scams to make sure you don't fall for a credit repair scam.
Even so, it can be awkward to talk about credit problems. Taking these steps now, on the other hand, will get you closer to the home of your dreams.
