While the Spring market may have been a little slower than normal in Fountain Hills, most experts agree that the housing markets should rebound as state and local restrictions ease and local commerce returns to a more normal pace. So if you have put thoughts of buying a home on hold for the time being, now is a perfect time to take stock of your credit situation and to be proactive about improving less than optimal scores. If your goal is to buy a home in 2020, it’s also a good idea to start building a relationship with a mortgage lender. A high quality lender can consult with you about specific areas in your credit report that need improvement, and may have specific suggestions that could help you raise your scores.
The home buying process revolves around credit. Unless you are a cash buyer (and few are), you are likely going to have to apply for a mortgage in order to purchase a home. Every mortgage lender will have minimum criteria for credit scores and other measures. For instance, if you are looking at an FHA mortgage, there is typically a requirement to make a down payment of 3.5%, and you will need around a 580 credit score to be approved. For those who can afford a larger down payment, say 10%, the you may be able to get by with an even lower rate.
However, if you are considering a “conventional” loan, your typical minimum required credit score is around 620. For those who may not have a lot of credit history, or who have a few blemishes, qualifying for a conventional mortgage may prove difficult. Regardless of which loan program you opt for, there are ways you can begin to raise your scores. Even people with pretty good credit (over 620) may benefit from taking action to improve their credit scores. Those with higher scores enjoy much more favorable loan terms than those with average or below average scores. Anything you can do to add a few points to your score will help you save money in interest costs and lower your monthly payment.
Be diligent about paying on time
It should come as no surprise that simply paying your debt obligations on time is one of the most important requirements for improving your credit score. Even those people who often make payments late risk harm to their credit profile. Mortgage underwriters are looking for red flags that may indicate that you pose a risk. Playing fast and loose with due dates may make you look irresponsible at best, to borderline fraud at worst. If you are only a few days late, you may not see much impact to your credit score, as most companies will not report until the account is 30 days late. However, if you get in the habit of letting things slip, it becomes easier to let things slide for longer periods of time. And it’s double hard to get back in the habit of timely payments.
Since making payments on time accounts for about 35% of your overall score, every negative report can have significant impact. Start improving your situation by making a commitment to always paying your bills on time.
Avoid running up high balances
If you have paid off all your credit accounts, congratulations! However, paying off all your debt doesn’t help your credit score. Mortgage lenders want to see that you can handle credit responsibly, which means they need to see regular payments and balances that are not out of control. Unfortunately, this means you may need to carry a balance. However, you don’t want your obligations to balloon out, either. Keep your borrowing less than 35% of the available credit line, and pay as much as you can each month, not just the minimum payment. If you have numerous maxed out cards, this shows the lender that you either have trouble budgeting, or that you are living beyond your means – either is a huge red flag. Balance management accounts for about 30% of your score, so between this and timely payment, you can have the greatest impact on improving your scores.
Avoid opening a lot of credit accounts
While it’s necessary to have a few open accounts that are active and in good standing to improve your score, you should be careful of opening too many accounts. Three open accounts is sufficient to provide a solid credit history. Each time you open a new line of credit, the credit company sends an inquiry to the reporting agencies. Each inquiry knocks points off your score, because it could appear that you are unable to control your spending or are becoming overextended. You need to look level-headed and responsible.
Consider obtaining a secured credit card
If you have no open credit accounts for whatever reason, you will have to find a way to prove to the bank that you are credit worthy. Someone with bruised credit may find it difficult to obtain a credit card. One option is to consider a secured credit card. This type of credit account requires a deposit – usually equal to the credit limit. So a $500 credit limit could require a $500 deposit. Once you obtain the card, keep a light balance and always pay on time. The bank will report your timely payments to the credit agencies just as if it were a normal credit card. After several months of responsible behavior, you may be rewarded with an increased limit. But the biggest benefit is to your overall credit score, which will begin to inch up if you pay on time.
If you have damaged credit, don’t feel alone. There are literally millions of people across the U.S. who have faced hardship for various reasons, or who may have gotten into trouble due to inexperience. The key is knowing what to do to begin to reverse the damage, so that your credit situation no longer defines you and is an obstacle to home ownership.
If you need referrals to top-notch mortgage lenders or need help with the buying process, we are here to help! Susan Pellegrini and Karen DeGeorge are ready to put their care and expertise to work for you. Buying or selling, our first-class service comes with a wealth of experience and eye for detail, ready to focus on you. Visit our website to learn more and contact us or give us a call at (480)- 315-1575, we’re here for you.
