These days with turmoil in the financial markets, it’s getting more and more difficult to get mortgage
approval. Lenders, who in the last four years were giving loans to anyone with a pulse, are becoming so risk-averse that they are endangering the very market upon which they depend. One factor which is becoming more and more important today: a good quality credit report.
What Makes Up a Credit Report outlined the various elements constituting a credit report: what’s in it and what’s not. Here are a few tips to help you keep your credit report pristine so you will have the best chance to get a loan.
1. Keep track of your credit score.
The higher your score the better. Make sure the credit report has no errors by checking the three major credit reporting agencies periodically. Errors take time to remove, so, if you’re looking for a house, you want to get started quickly.
2. Pay Your Bills On Time.
Duh! This is extremely important. If by mischance you are a few days late on a credit card or a mortgage, call the company and ask to have the fee removed. As a courtesy to good payers, most companies will remove the fee. That will assure that a late will not be reported to the credit agency. Be aware, though, you can do this once. After that, you must pay.
3. Avoid Collections.
Ever had a dispute with a credit card company? If you don’t make the payment during the dispute, the bill becomes a collection on your account and pulls down your score. Of course, regular collections from a court judgment over an unpaid bill can destroy your credit report. The key? How old is it? Many collections fall off after a specific number of years.
4. Limit Your Liabilities.
If you know you want to buy a house, don’t buy a new car or add three new credit cards as they will lower your score. And, please, NEVER co-sign for anybody including your beloved children and relatives. You won’t know if they don’t pay their bills on time, but for every late payment or repoed car your credit score gets the ding as well.
5. Limit Your Credit Inquiries.
Just before investing in property or while searching for a mortgage, don’t allow 75 prospective lenders to run your credit. Let one lender run the credit. Find out your FICO score and as you shop give it to other lenders who can then provide you with a scenario. Too many inquiries pulls down your score.
6. Do Not Open New Accounts Just Before Applying for a Mortgage.
This also applies to the escrow period. Do NOT buy a new car or tons of furniture while in escrow. Just before closing, the lender may run your credit again and these new debts could torpedo your loan. Wait until you close on your house.
7. Do Not Close Unused Accounts Until After the Closing.
Your credit score is calculated partly by how much of your available credit you are actually using. Opening new accounts to increase your ration won’t help either.
8. Be Honest.
Don’t try to hide past financial difficulties whether it’s a bankruptcy or a short sale or whatever. Your loan officer wants to do your loan. Explain what happened–divorce, child in the hospital, loss of job–that explanation can help your case.
9. Provide Information That Has Recently Changed.
Maybe you have paid off a bill and the payoff hasn’t yet shown up on your credit report. Maybe you sold a car. Make sure the lender knows which items on the credit report are no longer there. Most lenders use a service called Rapid Rescore which allows them to recalculate the FICO score in time to use it on your loan.