Make a Plan of Action
Improve your credit and FICO Score by following a couple of trains of thought and by using common sense. There is no exact “Improve Credit Score” formula, so everything you do either improves your credit score or lowers it. We think that making and following a plan of action can make a large difference for many people. Below are ways we think you can help your buying power.
1. Deciding To Buy A Home. Once you’ve decided to buy, you want to improve your credit score, or at least become informed as to what it is. First, you need to get a Credit Report and look for errors in identity or line items. You can download one free credit report each year at www.annualcreditreport.com. If you find any reporting errors, even small ones, correct them immediately. Follow-up and contact the credit reporting agencies. Challenge inaccurate reporting- it matters A LOT and takes time.
Paying Down Debt
2. Paying Off Accounts. Trying to improve your credit score does not mean that you cannot owe money. However, paying down debt can save you interest charges and lower your debt ratios. Consider consulting a lender to see if you would be better off using funds for your down payment or to pay down a credit card.
There’s a home loan rule that if you have a car loan with 10 or fewer payments left, it will not count in your ratios. As a result, that raises the dollar amount you qualify for. Talk to a home lender to determine where best to use any monies you have available. We’d be happy to refer you to a good lender in Las Vegas. If you are not buying in Southern Nevada, try to use a local lender so transition time and expense becomes a non-issue.
3. Look at your credit cards. Pay off small credit card balances and close those cards. Keep using 1-2 major cards. (You need open credit lines.) Department store credit cards- even with a zero balance- will have the minimum payment added to your ratios. While it may seem like a good idea, transferring credit card debt from one card to another can lower your credit score. Do not max your credit cards. Also, do not open new accounts!
Wait 12 Months After Difficulties
4. Plan Ahead. Twelve months removes dings off your report and can raise your score. The difference in interest rate is probably worth the wait, depending on your score. There are plateaus like “over 720” and “under 680” etc., therefore, again we suggest a free consultation with a home lender. It’s also a great way to interview lenders to see if you work well together in the future.
Avoid Using Finance Companies
5. Even if you paid off a finance company’s loan on time, the interest was typically high and therefore will be considered a sign of poor credit management to a home loan underwriter. As a result of you having had had this type of loan, it can be a big factor if you’re on the edge of qualifying.
DON’T BUY ANYTHING- YET!
6. I can not say that enough! Do not buy a car or home appliances or furniture or spend cash until you own your new home. Spending money will usually increase your debt ratio and/or your credit score will go down, which could be very bad. Because you are unique, at least agree to consult your home lender FIRST.
Lower Credit Limits
7. Avoid opening new accounts. When you want to improve your credit score, adding new accounts is not a good thing. Everything you do at this time either makes your credit worse or better. Worse costs you money. You will lose points for a full credit inquiry. Also, new accounts may show that you are into spending money. Points will be lost for an open credit line that has unused available credit. They figure you will use it. Just by having a newer open account your credit score might go down, which could subsequently raise your interest rate.
Shopping For Mortgage Rates
8. Credit report inquiries typically affect your credit score. Inquiries can lower your FICO score. While you are in the planning mode, we suggest that you get your credit score number- your FICO Score- and call 3 lenders/banks for rates and fees all on one day. By giving them your average credit score number, they can use that to quote their interest rate and fees. Whatever lender you choose when the time is right can officially run your credit. Due to the differences in rates and fees, we suggest that you get 3 quotes- one from your Las Vegas credit union or bank’s home loan division, one from a friend’s home lender and one from a lender we refer you to.
Start using your common sense as to what can make a difference. The key to paying a lower interest rate and qualifying for a home loan is PLANNING before you buy a home.
This Blog was written by Kurt Grosse, Top-Producing Realtor, Retired Building Engineer (P.E., C.E.), AKA The Protector