5 steps that can improve your credit score in 100 days or less

(BPT) – Low interest rates, a strong economy and the turn of the seasons are all causing the real estate market to heat up. More homes on the market bring more competition to buy the inventory that is out there. And one way to stand apart from other buyers who are vying for their dream home is to take steps to improve your credit score now.

“Preparing your finances is a must before the busy real estate season,” says Barrett Burns, president and CEO of credit score model developer VantageScore Solutions. “Knowing your credit scores and making improvements is essential to getting the best loan at the best rates. This also makes you a more attractive home buyer, especially in a competitive market.”

With limited time, you may think there’s nothing you can do to improve your score. Burns says that’s an incorrect assumption. While you can’t make dramatic jumps in just a couple months, there are several steps you can take that may influence your score to increase enough to get you prequalified for the loan you want.

Keep in mind, lenders will pull your scores from all three major credit bureaus (Equifax, Experian and TransUnion), so it’s wise to check your credit report from each of them. You can do so for free once every 12 months at AnnualCreditReport.com. For best results, monitor at least one credit score from each of the bureaus. You also can check your credit score for free through a large number of online services, such as CreditKarma.com, NerdWallet.com or Credit.com. Other sites offering free VantageScore credit scores can be found at VantageScore.com/free.

Once you have your reports in hand, you can take steps that may have a positive impact on your scores.

Step 1: Check for errors

A credit report gives a comprehensive list of your lines of credit and payment history. The first step is to review your credit report for errors and take steps to make corrections, including past and present names, loan amounts and credit cards in your name.

When checking your credit score, bear in mind that some differences in credit scores across bureaus is normal. But if one of the three credit scores is an extreme outlier, it could be worth double-checking your credit report from that bureau to make sure it doesn’t reflect any questionable or erroneous activity.

Step 2: Don’t miss a payment

Creditors are interested in seeing how you manage credit, and the consistency of behavior counts. You should always pay at least the minimum amount due on bills on time every month. An easy way to ensure you don’t miss a payment is to sign up for automatic bill pay when available.

Step 3: Lower credit utilization levels

Credit utilization is the ratio of a credit card balance to the credit limit. If your balance is $5,000 and your credit limit is $10,000, then your credit utilization for that credit card is 50 percent. In general, a good credit utilization is less than 30 percent, so if you have a higher ratio, consider using your tax refund to pay down this debt.

Step 4: Don’t close old credit cards

If you have a credit card that is no longer used but was previously paid off on time each month, don’t close the account. Not only is this good for your credit utilization ratio, but it also is another indicator you’re a responsible candidate for a loan.

Step 5: Don’t apply for new credit

Avoid applying for any new credit, such as an auto loan or a new credit card account, between now and the time you will close on a home purchase. Lenders considering your loan application request your credit score from one or more credit bureaus. And these lender “inquiries” are recorded with one or more of the three national credit bureaus, which may lower your credit score by 10 to 20 points. The score decreases typically only last a few months, as long as you continue to make payments on time. But unless they’re absolutely necessary, try to avoid additional inquiries until after you’ve secured your mortgage.

If you follow these five steps, you may see an increase in your score within a few months so you can get a loan and be an attractive buyer when it comes time to put in a bid for your dream home.

Keep in mind, the more you can put toward the down payment, the more instant equity you’ll have, the lower your monthly payment will be, and the better your chances are of not needing private mortgage insurance (PMI), which can add hundreds of dollars to your monthly payment.

Plus, if you’re able to put down more than a lender requires, a mortgage company may be willing to give you a pass on other issues on your application, such as a less-than-stellar credit score.


Contact Teresa if you have questions or need more information about credit, 614-565-8161 or Teresa@TeresaButler.com

Cleaning Up Credit Inaccuracies

Discovering an error on your credit history can be a rude surprise when you’re attempting to get pre-approved for a mortgage. Though most people don’t think about the details of their credit report until the need to secure a loan, it’s a good idea to check your report for inaccuracies periodically.

If you do find an error, the best way to attempt a correction is through a dispute letter. Dispute letters allow you to formally request a fix by the reporting agency. Though it may take a little time to get the errors removed, cleaning up these mistakes can have a direct (and favorable!) effect on your credit score, helping you secure lower interest rates and better terms.

Here’s what you’ll need to include for each mistake you find:

  1. Which account shows the mistake.
  1. Specifically what’s incorrect about the account where it appears in the report.
  1. What changes should be made and why those changes should be made.
  1. Any supporting evidence or documentation which will bolster your claim.

For example: “On my report, the Chase Visa ending in XXXX shows my account is still active. I closed this account in 2012 and should be shown as closed, not active. Included is a letter from Chase bank, confirming the date of my the account’s closure.”

It’s a good idea to keep copies of everything you send. Also, be sure to send the correction to all three major reporting agencies (Equifax, Experian, and TransUnion) as well as the original creditor (i.e. the credit card company, utility, etc.). You can find the current dispute mailing addresses on these company’s websites. Federal law mandates that agencies must help you within 30 days. Keep records of your disputes and when/how you communicated with the agencies.

Getting your credit in shape is an important step to take when you’re preparing to buy a home. I help buyers prepare every day! Get in touch: Teresa Butler, 614-565-8161 or Teresa@TeresaButler.com


Fannie, Freddie to Loosen Up on Lending

MORTGAGE CALCULATORSThe regulator of mortgage giants Fannie Mae and Freddie Mac is reportedly working on a deal with the financing entities that will loosen up lending standards and make mortgages more affordable for those with less-than-perfect credit. The move is expected to expand home buyers’ access to financing, as tight credit the last few years has kept many sidelined.

The new rules reportedly will include a lower minimum down payment requirement (from 5 percent to 3 percent), in order for lenders to qualify to sell a loan to Fannie Mae and Freddie Mac. That would bring down payment in sync with the Federal Housing Administration, which insures loans made to lower-income borrowers and first-time buyers. Fannie Mae and Freddie Mac guarantee about 59 percent of all mortgages written.

The Federal Housing Finance Agency, which regulates Fannie and Freddie, reportedly will include more safety measures to help lenders protect themselves from making bad loans. Lenders have faced numerous high-dollar settlements after issuing loans that later defaulted. The new agreement would give greater confidence to lenders so they won’t be penalized years after a loan is made, The Wall Street Journal reports.

The potential agreement “would allow credit to flow more freely to lower- and middle-income households,” Mark Zandi, chief economist at Moody’s Analytics, told The Wall Street Journal. “That’s vital to getting the housing recovery moving forward.”

During the financial crisis, the financing giants faced steep losses as home loans defaulted. The spike was blamed on poor underwriting by lenders in ensuring that borrowers could afford their mortgages. In response, the companies, which were seized by the government in 2008, have had banks tighten their credit standards, which some critics say has gone too far and prevented many home buyers from qualifying for a home loan.

The Urban Institute has estimated that 1.2 million more mortgages would have been issued in 2012 alone if lending standards that were commonly used in 2001 were still in place.

“Understandably, after the [financial] crisis the pendulum of mortgage credit standards swung to a far extreme” Paul Leonard, California director of the Center for Responsible Lending, told the Los Angeles Times. “It’s now working its way back to a more moderate position.”

The FHFA is expected to formally announce the plans later this week.

Source: “Fannie Mae, Freddie Mac Reach Deal to Ease Mortgage Lending,” Los Angeles Times  and “Mortgage Giants Set to Loosen Lending,” The Wall Street Journal 

Study: Rental Payment History Can Help Boosts Credit Scores

The addition of rental payment data to credit files may help more potential renters become home owners.

Experian became the first credit reporting agency to add on-time rental payments to its database. It recently conducted an analysis to determine how the added rental information has aided consumers’ credit files.

From Renters to Home Owners:

The study found that subprime and nonprime residents saw the greatest positive score impact by the addition of rental histories. Nineteen percent of the study participants that were considered subprime moved to at least one higher – or less risky – risk segment by the addition, opening them up to more affordable credit and additional credit opportunities, the study noted.

For the previous unscoreable, adding the rental data has now allowed them to have a credit score, with the majority now falling in the least risky prime category too, Experian’s analysis shows.

“Consumer financing rapidly changed during the economic upheaval, and regulatory changes forced lenders to tighten the standards for the underwriting process,” says Genevieve Juillard, president of Experian Consumer Information Services. “This excluded many Americans from the opportunity to attain credit due to a limited or no credit history. Residents who pay their rent on time month after month should be rewarded and not overlooked simply because they rent instead of own the place they call home.”

Source: Experian

Can a person with a low credit score get a home loan?

It is possible to get a mortgage loan with a low credit score. Technically, FHA will accept a score as low as 500. Finding a lender to accept that score is a different story. I have limited sources who may give loans to buyers with scores as low as  530 for FHA loans, 560 for VA, and 620 for USDA and conventional loans. The lower scores also might require at least a 10% down payment. The more down payment you have, the easier it becomes to get approved.

You might also seek out lenders who do portfolio loans. These are lending institutions that will keep the loan in house and not sell it in the secondary market. They can decide for themselves if the loan makes sense and if they are willing to take the risk. Of course, the higher the risk, the higher the interest rate.

It is, however, prudent to increase your score before getting a loan. There are various things you can do to increase your score, many times in a short time. Some credit issues might take more time. You should review the reasons for your low score. In certain cases, now may not be the time to get a home loan. Many other cases, it is simply a matter of cleaning up a few things to get a healthy credit score to get the best rates and terms to increase your buying power.

If you have questions or concerns about your credit and how you might be able to increase your buying options, feel free to contact me. I will get you solid advice to help you achieve the best score in the shortest time.

Weighing the costs of walking away from an upside-down mortgage

(ARA) – Owing more on your mortgage than your house is worth may seem like a bad investment. But the alternative – choosing to default on your mortgage even if you can afford the monthly payments – will take a significant toll on your credit rating.

“Strategically defaulting – deciding to stop paying your mortgage regardless of your ability to actually carry the debt – will have a far-reaching, long-lasting impact on your ability to secure future credit,” says Maxine Sweet, vice president of public education for global information services company Experian, one of the three large credit reporting companies that receive and update consumer credit histories which are scored to help predict risk. “It’s by no means a move to be undertaken lightly.”

About 355,000 borrowers strategically defaulted in the first half of 2009, according to research conducted as part of the Experian-Oliver Wyman Market Intelligence Reports. Interestingly, Experian and Oliver Wyman found that the homeowners most likely to strategically default were also those with the highest credit scores.

While it may seem like a good move to simply stop paying and walk away from a bad investment, keep several factors in mind when you consider strategic default:

* It’s very final. Strategic default will lead to foreclosure by the lender. Foreclosure will negatively impact your credit report and scores. In fact, only bankruptcy will affect your scores more adversely than foreclosure.

For more information on just how severe the impact can be, VantageScore LLC recently completed a study that evaluates the effect that foreclosures, bankruptcies, short sales, and various mortgage programs have on consumers’ VantageScore credit scores.

* The default will remain on your credit report for seven years. Since credit scores are based on information in your credit report, the foreclosure will greatly impact your credit scores during those seven years. Securing other credit at reasonable terms and rates will be very difficult, if not impossible, during that time.

* Potential lenders aren’t the only ones looking at credit reports these days. Insurers, employers and even cell phone companies are considering the creditworthiness of those who want to do business with them. By impacting your credit report, a strategic default may affect your ability to get a job, secure insurance and enter into important service contracts.

* Fannie Mae, the government-controlled mortgage giant, announced on June 23 policy changes that will make you ineligible for a new Fannie-Mae-backed mortgage if you walk away from a current mortgage that you actually could afford to pay. The ineligibility will last for seven years from the date of foreclosure.

* Finally, in some cases, the debt that foreclosure “erases” may be recorded as income, which means you will have to pay taxes on it.

“Strategic default may seem like ‘walking away’ from a bad debt, but it’s really anything but,” Sweet says. “While you will no longer have to pay the actual debt, you’ll almost certainly ‘pay’ in other ways, in the form of lowered credit scores and a drastically curtailed ability to secure future credit for the next seven years. Higher interest rates and unfavorable terms could end up costing you more in the long run than continuing to pay on an upside-down mortgage.”

To learn more about credit management, credit reports, credit scores and the factors that affect them, visit www.Experian.com.

Courtesy of ARAcontent

Understanding your credit opens the door to home-buying success

(ARA) – With many signs pointing to the beginnings of a recovery in the housing market, potential home buyers can still find plenty of selection, low prices and low interest rates. If you’re thinking of buying a home, now might be the right time, but before you contact a real estate agent or apply for a mortgage, your top priority should be checking your credit report to see if your credit is in good shape.

Credit – specifically misuse and misunderstanding of credit – spurred the housing crisis, many experts agree. The consequences have included tighter standards from lenders and the need for borrowers to better understand how to use credit wisely.

Interest rates remain low and those with good credit will be better positioned to take advantage of the opportunities currently available in this unique housing market. A good credit report and score can open doors for you in the real estate world, and empower you to secure the best loan and terms possible before you ever tour a single house. Being preapproved for an affordable mortgage can help you move quickly to secure a deal when you find the home of your dreams.

If you’ve already assessed your finances to determine how much mortgage you can afford, you’re ready for the next step – making sure your credit is in top shape to help you get the best possible loan.

Understanding your score and what it means

Lenders consider your credit score and your current credit report when deciding whether or not you’re a good credit risk. Your credit score is a number generated by using statistical models that factor in elements from your credit report. The number can change when information on your credit report changes and it’s calculated at the time a lender requests a copy of your credit report. Different lenders may use different scoring methods, so your score may vary from lender to lender.

Because credit scores are objective and are based on the information in your credit report, they are fairer than the old opinion-based ways of determining a person’s risk level. Your score is a prediction of your likelihood to repay debt responsibly, based on your past credit history and current credit status.

Before you begin contacting potential lenders, check out your credit report, which can be accessed online at Web sites like FreeCreditReport.com.

Know what’s on your credit report

Your credit report is the other major piece of information a lender will consider when deciding whether or not to give you a mortgage loan. Your credit report is basically a summary of your financial behavior, including how you’ve used credit in the past and how well you manage repaying debt. The information on your report comes from creditors, public records and other reliable sources, which report it to the credit bureaus through automated processes.

Credit reports generally include personal data such as variations on your name, your driver’s license number, Social Security number, birth date, current and past employers, and current and past addresses. You’ll also find a listing of your credit accounts, when each account was opened and your payment history for each. If you’ve been involved in court action like bankruptcy or monetary judgments, this information will likely appear on your report as well.

Your report will also show past requests for your credit reports (inquiries) that might come from lenders, insurers, employers or stores. Too many inquiries on your report might make potential lenders think you are trying to overspend, so think carefully before applying for new credit; inquiries stay on your report for two years.

Because your credit report changes every time you use credit, it pays to enroll in a credit monitoring product. Web sites like FreeCreditReport.com make it easy to track both your score over time and monitor your credit report, ensuring you know what’s on your report before a potential lender looks at it.

Buying a home is likely the largest investment you’ll ever make – one that will impact your credit for many years to come. Before you jump into the process of applying for a loan to buy a home, it pays to understand credit, review your report and know your score.

Courtesy of ARAcontent. Photo ©Teresa Butler 2010. All rights reserved.

Boost Your Credit Score

Follow these tips, and watch your credit score soar.

Pay your bills on time
This may seem like a no-brainer, but just one late payment could negatively affect your credit score for years. However, if you regularly pay your bills on time, your score will improve dramatically. For example, someone with an average credit rating of 707 can raise their score by as much as 20 points by paying all their bills on time for one month.

Eliminate late payments
If you do make a late payment, try contacting the creditor to ask for a good faith adjustment that will eliminate the late payment on your credit report. Be patient and understanding when calling, though. It may take more than one phone call, and if you’re rude, you’ll probably be denied.

Keep balances low
The closer your balance is to zero, the more favorable you’ll be scored. Keeping your credit use less than 30% of your credit limit is the best way to achieve a good score. Maxing out your credit cards could lower your average score by as much as 70 points.

Don’t cancel your cards
Canceling an account won’t make it go away; a closed account still shows up on your records. In fact, unless the account was opened less than two years ago and you have over six credit cards, closing an account can hurt your score. Credit scoring software assumes people with longstanding credit are less of a risk to default on payments.

Remember to check your credit score before asking for a loan. There are ways to improve your score, but the best way to increase those three little digits is to pay back on time and in full.