Many upcoming homebuyers these days may or may not be able to purchase a home at this particular moment in time. Perhaps they need to save more money for a down payment or perhaps their time on their current job may not be long enough. In addition, credit scores and past credit may tend to be an issue.
If credit is a factor which would not allow you to qualify for a home loan now, there is hope. This does not mean that we can’t get you a home loan, but the credit report we pulled has a lower FICO score than needed for the home loan. It may be that you are a first time homebuyer, and we may have a limiting FICO score for you home loan. It may be that your loan requires limited documentation based on our prior conversations and the FICO score we receive is lower than necessary. So, our attention is to improving your credit scores or credit management.
What makes up credit scores?
Approximately 30 to 35% of your score comes from the number of recent lates you have on any account. When you have a more recent the late on a trade line, the bigger ‘ding’ on your credit scores. Other uncomplimentary line items, like collections, charge-offs can further impact your score. There is little one can do to repair this credit ding, as it reflects on your ability to pay timely.
Another 33% of your score is determined by how much you owe vs. the high credit line. This is more apparent on credit cards. For example if you have a $10,000 balance on your credit card and you charge up the balance to $9,800 each month, and even if you pay it off each month, the credit scoring system will ‘ding’ your score for high usage to the balance. In fact, the credit scoring model will improve significantly, if you balance is approximately 20 to 25% of your high credit line. On our example, there should never be any more that $2,000 to $2,500 on that credit card at any time!
Obviously, the timely payment of your current credit obligations needs to be established or continue. However, the biggest impact that you can control is your balance to the high credit line. You need to attack each credit line with the idea that the balance needs to slowly be reduced.
Create a budget now! Where can you find an extra $35 to $100 / month? Look at attacking the credit item with the lowest credit line. So if you have a $500 credit card limit or a $3,000 credit card limit, work on lowering the credit card limit on the $500 credit card. First, it is easy to accomplish. Second, it will have an immediate impact on your scores, and third, you will feel like you are taking control of your credit and management of your credit.
If you can open a new credit card, that may not be altogether a bad idea. However, don’t charge anything on that card. See if you can move some balances from the high balanced credit cards to this one. And remember, no more than 25% should be on your card’s high limit.
I am always asked should I close out a credit card? That is a longer discussion that we can have on the phone, but for the most part, if the card has a good pay history over the past two years, don’t close out the account. If you do, then your current credit card balance becomes the high credit card line and your card limit will be at 100%. I would rather tell a borrower to continue to lower the balance and keep the card active.
Remember, having no balance on a credit card does not determine if you can manage credit … it just shows that you have a credit card with no balance!
What is Credit Expert?
Since we would like to create a game plan for obtaining a loan for you, we have an added feature with our credit reporting system, call Credit Expert. Credit Expert is a program that gives a “what if” scenario and tries to predict how you can raise your credit scores.
As a goal, we try to tell Credit Expert what a target credit score we would like for you to have. Credit Expert then creates a report to tell you what you might do to improve your credit score. This is no guarantee that all of these suggestions will help, as other factors in your credit history could change while you are working on these suggestions. However, most of these suggestions work to lower balances on credit cards and have, in the past, shown that scores will improve.
We can create a copy of the Credit Expert report for your specific report. It will be up to you to review the strategies shown on Credit Expert and begin to make a change in your spending habits to make improve your scores.
We have found that credit scores can improve in as little as three months if a borrower follows the advice of Credit Expert as suggested, to improve your FICO score.
Disputing Your Credit Report
Disputing Credit Lines:
The Fair Credit Reporting Act was created to allow the consumer to dispute items on their credit report or to update incorrect information. Even the simplest info, like you name, address and places of employment should all match, to show accuracy in your credit report.
Many times, potential home buyers who have gone through bankruptcy, think the creditors will update their credit report. Don’t plan on that. Creditors many times will only show the last activity you had with them, so, you may want to consider ‘disputing’ a credit report to permanently update your credit report.
What you need to know is that the law states that the credit reporting agencies, Experian, Equifax and TransUnion, have 30 days to review your request, act on it.
The must show accurate information on your credit report. It is the law. However if they do not respond to you timely, i.e. in thirty days of the receipt of your dispute, they must remove that information if they have not answered back to you in those 30 days. Therefore, I highly recommend that when you send your letter, you FED EX or send US Mail, return receipt requested, so you know when the 30 days begin.
My ultimate goal is to have a ‘game plan’ to get you into home ownership. |
