- Posted by towpe1
- On November 4, 2018
- 0 Comments
How to get credit-ready to apply for a mortgage
Summer is here and with the warm weather and the desire for backyard BBQ’s and playsets for the kids comes the desire for new home purchases. If you are starting to think about buying a new home, now is the time to make sure that your credit score is where you need it to be.
Think of buying a home like just like planning to get in beach shape for the summer or getting your golf swing in line, it is a process and you must allow enough time to prepare. If you want to make sure that you are in a position to buy that new home, you want to make sure that you allow time to do everything necessary to get your credit in the best shape possible first. Here are the steps that you should follow to make sure that you have done everything on your end to make sure that your credit is ready for the mortgage process.
Taking steps towards improving your credit score will lead to better access to loans, more attractive interest rates, and unwavering confidence when a bank, a car company, or any other lending institution ask to review your credit report.
If you want to work with a team of professionals you can trust, contact USA Credit Repair today. We would love to discuss your needs and how we can help you legitimately repair your credit.
1. Order copies of your credit reports
The first thing you need to do to be able to assess the state of your credit is obviously to review it. By law, you are entitled to receive a free copy of your credit report from each of the three major credit bureaus (Experian, Equifax, and Trans Union) once per year. You can access these reports by going to AnnualCreditReport.com. You will not receive scores with these reports but it is a good starting point.
Once you receive the reports you will want to review them completely and look for any errors or misinformation as well as any accurate negative information that may be appearing. Make sure that there are not any accounts appearing on your reports that you do not recognize and that there is not any personal information listed that does not belong to you. These can be indications that someone else’s information is mixed with yours or more seriously, that you are a victim of identity theft.
If you need help cleaning your credit history call USA Credit Repair as soon as you can, so we can help you dispute the negative items on your report.
2. Challenge errors on your credit reports
Once you receive copies of your reports and review the information, it is not uncommon to find some type of error on your credit report. Any misinformation in your credit history could be affecting your score and making you less creditworthy to potential lenders. Once you identify any errors you should address them immediately and there are two ways that you could go about this. You can contact the credit bureaus directly on your own to dispute the information, though this is not always recommended depending on what the errors or credit issues are.
The other option is to hire a professional credit repair company to help you with any errors or credit issues. You can refer to our previous article on the differences between do it yourself repair and using a credit repair company. If you move forward with working on your credit yourself, be prepared to spend quite a bit of time dealing with both the creditors and the credit bureaus, it is a time-consuming process.
3. Make sure that you are paying all of your bills on time
The best thing that you can proactively do to ensure that your credit is in great shape is to make sure that you are on top of all of your bills and are making all of your payments on time. Obviously the credit score factors in all of your previous payments, not just the ones that you make between now and the time when you go to apply for the loan. So if you have any previous negative history, it is going to be hard to undo that quickly by making a few payments on time, however getting back on track as quickly as you can is still better than not. The longer you can establish a solid payment history without any bumps in the road, the better.
4. Pay down your credit card balances
Your balance to limit ratio has a very big impact on your credit score, 30% of your FICO score is based on the amount of revolving debt that you carry. The best way to quickly improve your credit score is by paying down your credit card balances as much as you can. The majority of consumers with scores over 700 have a balance to limit ratio under 10%, which is ideal, though there is no magic number to target.
Just remember that the more of your balances that you pay down and the lower your ratio becomes, the better your score will be. Once you have paid down the balances, remember not to use the cards at all for at least 30 days before applying for the loan. This will ensure that the updated balances get reported to the credit bureaus and that they will remain low on your credit report so your score is maximized when having the bank run your credit.
5. Do not open or close any accounts
Any time you apply for credit your score takes a slight hit from the inquiry, once you have more than 5 inquiries in one calendar year, your score can take a more significant hit. Furthermore, when you open any new accounts, it reduces your average age of credit which makes up 15% of your score. You also do not want to close any revolving accounts. You have no control over an installment account coming to the end of its term and closing, but this will not have an impact on your score anyway. However, closing revolving accounts will lower your balance to limit ratio as discussed above since you will no longer have that available credit.
When planning to apply for a mortgage, that has to be the number one priority, you want to put all other credit transactions on hold until you complete the mortgage process.
Is it worth it?
Ok, so now that you have reviewed all of the steps for preparing to apply for a mortgage loan you might be thinking, “Is it really worth it? I don’t want to put in all of that work and take all of that time, I want to just go apply for my new mortgage now!”. That is a completely understandable reaction and yes, preparing your credit for the mortgage process can be lengthy and potentially expensive. However, the answer to the question is YES! It is definitely worth it!
The fact of the matter is that every 20 points that you can improve your credit score leads to a lower interest rate and potentially tens of thousands of dollars in savings over the life of the loan!
Here’s an example of potential savings on a home loan of $250,000:
With a score of 640 you may have an interest rate of 5.2%, which means you would be paying about $245,000 in interest over the course of a 30-year loan.
By contrast, with a score 700 you could have an interest rate of 4.2%, which means you would pay about $190,000 in interest over the course of a 30-year loan. That’s a savings of $55,000!
So yes, it is definitely worth it to do all that you can to get your credit in shape for the mortgage process! And the earlier you start, the better!
If you want to work with a team of people you can trust, contact USA Credit Repair today. We would love to discuss your needs and how we can help you legitimately repair your credit.