If you’re planning to buy a new home before the end of the year, its probably a good idea to work on these three ! It really doesn’t matter whether you are a first-time homebuyer, upgrading, or downsizing; checking that your credit is in good shape should be on the top of your list.
Maybe you have set a goal to purchase a home by the end of 2019 If so, you may still be able to accomplish that goal even if your credit needs a little fine-tuning. What you’ll need to do first, however, is a mid-year credit check.
It can take months to effectively make changes in your credit scores, and sometimes even years if major changes are needed. It pays to start working on your credit rehabilitation as soon as possible when you’re considering a major purchase, like a home. Every point you can shave off your interest rate on a long-term installment loan is real money that you’re not having to pay every month. It’s almost like ‘finding money’. You can also start a conversation about how to pay off your mortgage early if you have just purchased. Our mortgage partners are here to answer your questions whether your plans are to purchase now, by the end of the year – or even if you’re just not sure yet.
Although every situation and every credit report is different, here are three important tips that may help you prepare your credit for a mortgage and be in your new home for Christmas!
1. Review Your Credit Reports and Scores
It’s important to understand what your credit reports look like right now if you hope to purchase a home by the end of the year. Checking your credit will let you know whether you could potentially qualify for a home loan now, or whether there are things you can do to avoid a loan denial letter. Even if you can qualify, a poor credit score could cause you to pay a higher interest rate and a larger monthly payments.
You’ll need to check your credit reports with all three of the major credit bureaus — Equifax, TransUnion, and Experian. Sometimes called a TRI-Merge. After all, that’s what ours and any mortgage partner will do when you officially apply for your mortgage. Don’t worry: Checking your own credit reports will NOT damage your credit scores. That’s a myth. Too many credit pulls for other lines of credit might pull your score down, but you checking your own scores will not.
Finally, if you discover errors or mistakes on any of your credit reports, you should start the dispute process with the credit bureaus. Errors are common and might do damage to your scores or make it harder to qualify for a home loan. They should never be ignored. Plus, the investigation process can take 30 to 45 days under normal circumstances, and much longer if you have to try more than once to get a mistake corrected.
2. Pay Attention to Your Credit Card Balances. (hint…the word ‘balance’)
Credit scoring models, FICO and VantageScore, are designed to pay close attention to something known as your revolving utilization ratio, sometimes referred to as the credit utilization ratio. Credit utilization is the relationship between your credit card limits and your credit card balances.
If you’re preparing for a mortgage, your goal should be to keep your credit utilization ratio as low as possible.
As the card balances on your credit reports get higher, you are using a larger percentage of your credit limits. This causes your credit utilization to go up, and that’s not good as this ratio directly effects your score
If you’re preparing for a mortgage, your goal should be to keep your credit utilization ratio as low as possible. That might mean paying off credit cards and shelving them for a month or two. Our mortgage partner David Thurber can also give you suggestions on which bills/cards to focus on first and can work with you to create a plan to raise your score, lower your debt to income ratios and more.
3. Be Vigilant About Late Payments
The final tip isn’t so much a credit “do” as a credit “don’t.” Anytime you’re preparing for a major purchase and you plan to take out a loan, you need to AVOID LATE PAYMENTS. In truth, you should always avoid late payments as far as your credit scores are concerned but you really need to avoid them before a loan application.
About one third of the points in your FICO and VantageScore credit scores are based on your payment history. It’s safe to say that late payments can potentially be detrimental to your credit scores.
If you’d like a FREE, no obligation mortgage consultation to see how you can become a READY, WILLING and ABLE Home Buyer by Christmas please connect with me or our Mortgage Partner David Thurber. David is a Mortgage PLANNER and can help you put a strong plan together and even perhaps even point out some things that you may not be aware of that will save you money, lower your payment or raise your credit score.
Remember the old quote from Jonathan Raymond –
“You can’t know what you don’t know”
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