Good credit is well worth the effort it takes to both achieve and preserve it. If you have good credit, the following tips will help you keep it that way. If you are looking to improve your credit, however, now is the time to get started. Give us a call. We’ll review your credit and find out exactly where you stand. In the meantime, if you plan on entering into a loan transaction in the next 6 to 12 months, you simply cannot afford to make the following credit mistakes:
Don’t fall behind on existing accounts. This includes your mortgage and car payments. One 30-day late can cost you anywhere from 30-80 points or more depending on the other factors being reported on your credit reports.
Don’t pay off old collections or charge-offs during the loan process. Paying collections will decrease your credit score immediately due to the “date of last activity” becoming recent. If you want to pay off old accounts, do it through closing, and make sure that 1) you validate that the debt is yours, and 2) the creditor agrees to give you a letter of deletion.
Don’t close credit card accounts. If you close a credit card account, it will appear to FICO that your debt ratio has gone up. Also, closing a card will affect other factors in the score such as length of credit history. If you have to close a credit card account, do it after closing, and make sure that it is an account you’ve opened more recently. Remember, 10% of your credit score is made up of your Mix of Credit, so it is important that you have at least 1-2 major credit cards open and in good standing.
Don’t max out or overcharge your credit accounts. This is the fastest way to bring about an immediate drop of 50-100 points in your credit score. Try to keep your credit card balances below 30% of their available on your monthly statement, and especially during the loan process. If you decide to pay down balances, do it across the board. Meaning, make an extra payment on all of your cards at the same time.
Don’t consolidate your debt onto 1 or 2 credit cards. It seems like it would be the smart thing to do; however, when you consolidate all of your debt onto one card, it appears that you are maxed out on that card, and the system will penalize you as mentioned above. If you want to save money on credit card interest rates, wait until after closing.
Don’t do anything that will cause a red flag to be raised by the scoring system. This would include adding new accounts, co-signing on a loan, or changing your name or address with the bureaus. The less activity on your reports during the loan process, the better.
Don’t do it alone. If you feel that the credit challenges you’re facing are too much, or you don’t have enough time to do the work necessary to improve your own credit, don’t lose hope and give up. Give us a call. We can help. In many cases, small changes to your credit profile could yield big results that could save you thousands of dollars on your mortgage. However, if professional credit repair does become necessary, we’ll gladly provide you with a referral to an experienced professional credit repair specialist you can trust.
Stay tuned for more great credit tips!
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1. Use the Buddy System
|1.||Pre-approval – Get pre-approved for a mortgage and know in advance exactly how much house you can afford. Completing this step will also increase your negotiating power since you’ll be viewed as a “cash buyer”.|
|2.||Loan Search – Put yourself in the hands of an experienced mortgage professional, someone who will help you to determine which financing options best suit your needs today and in the future.|
|3.||Loan Application – It’s crucial to supply the lender with as much information as possible, as accurately as possible. All outstanding debts as well as assets and income should be included.|
|4.||Documentation – Paperwork supporting the application must also be submitted. Information commonly sought includes pay stubs, two years’ tax returns, and account statements verifying the source of the down payment, funds to close and reserves.|
|5.||The Hunt – Begin shopping for a house. Once you find the right one, the terms of the sale will be negotiated, including the price and potentially the terms of the loan being sought.|
|6.||Appraisal – Lenders require an appraisal on all home sales. By knowing the true value of the home, the borrower is protected from overpaying.|
|7.||Title Search – This is the time when any liens against the property are discovered. A lien may have been placed on a property to ensure payment of outstanding debts by the owner. All liens must be cleared before a transaction can be completed.|
|8.||Termite Inspection – While most purchase loans do not require a formal inspection for termite and water damage, some loans (especially government loans) allow for the possibility. If problems are found, repairs may be necessary.|
|9.||Processor’s Review – All pertinent information will be packaged by your mortgage professional and sent to the lending underwriter, including any explanations that may be needed, such as reasons for derogatory credit.|
|10.||Underwriter’s Review – Based on the information put together by the loan professional, the underwriter makes the final decision regarding whether a loan is approved.|
|11.||Mortgage Insurance – Many lenders require private mortgage insurance when borrowers put down less than 20 percent on a loan.|
|12.||Approval, Denial or Counter Offer – In order to approve a loan, the lender may ask the borrowers to put more money down to improve the debt-to-income ratio. The borrower may also need a bigger down payment if the property appraises for less than the purchase price.|
|13.||Insurance – Lenders require fire and hazard insurance on the replacement value of the structure. Flood insurance will also be required if the property is located in a flood zone. In California, some lenders require earthquake insurance on condominiums.|
|14.||Signing – During this step, final loan and escrow documents are signed.|
|15.||Funding – At this point, the lender will send a wire or check for the amount of the loan to the title company.|
|16.||Confirmation of Funding – The lender authorizes the disbursement of loan proceeds.|
|17.||Closing – Documents transferring title will now be officially recorded by the County Recorder.|
|18.||Congratulations, you are now a homeowner!|
If you’d like to learn more, please give me a call. I’d be happy to speak with you!