Increasing Credit Scores Before Applying For A Mortgage
This article is about Increasing Credit Scores Before Applying For A Mortgage
Increasing Credit Scores prior to applying for a mortgage is important to get the lowest mortgage rates. The number one factor in determining mortgage rates by lenders is the borrower’s credit scores. There are other factors that determine mortgage rates. But credit scores have the biggest impact. For borrowers who are planning in applying for a mortgage, it is recommended in increasing their credit scores months prior to completing a loan application.
Gustan Cho Associates is a five-star national mortgage company with no lender overlays on government and conventional loans. Over 75% of our borrowers at GCA Mortgage Group are folks who could not qualify at other lenders. This is because of their lender overlays. The team at Gustan Cho Associates are experts in helping borrowers qualify for a mortgage by helping them boost their credit scores.
We will offer tips and tricks in boosting and maximizing your credit scores in this blog.
Increasing Credit Scores And Checking For Errors On Credit Reports
The average home loan in the United States is $335,750. Therefore, even a mortgage rate reduction of 0.125% makes a huge difference when it comes to monthly payment savings. A lower rate means lower monthly payments. Lower monthly mortgage payments mean tens of thousands of dollars in savings over the course of a 30-year fixed-rate mortgage. Increasing credit scores prior to applying for a mortgage will no doubt save you money. Higher credit scores mean lower mortgage rates.
It is no rocket science in boosting your credit scores. However, increasing credit scores does take time. It cannot be done overnight. It is recommended that borrowers try to maximize credit scores a few months prior to applying for a mortgage.
The team at Gustan Cho Associates are experts in helping borrowers maximize their credit scores prior to applying for a mortgage.
Maintaining Strong Credit Scores And Timely Payments
Maintaining good credit scores and timely payment history is very important. Not only can a high credit score save you tens of thousands of dollars over the course of a home loan, but it can save you money on other things. Insurance premiums are also determined by consumer credit scores. The higher the credit scores, the lower the insurance premium is on auto, health, and property insurance.
Good credit scores are used by employers in their hiring and promotional process. Employers judge a person’s credit on their financial responsibility. Many employers will not hire and/or promote candidates with low credit scores and bad credit.
The following actions will help you maintain good credit scores:
Make timely payments on all monthly debts that report to credit bureaus as well as utility bills that do not report to credit bureaus:
- This accounts for 35% of your FICO score
- This should be common sense
- Even a $1 monthly late payment is considered a late payment and will stay on your credit reports for 7 years
- If there is a collection agency notifying you, please take action right away and see what they want
Revolving accounts are credit cards:
- The credit card utilization ratio is the balance compared to the credit limit on all revolving accounts
- Credit card utilization accounts for 30% of your FICO credit score
- The amount of credit being used upon a credit card account is called your credit utilization ratio
- The credit utilization ratio makes up 30% of your FICO score
The consumer’s payment history accounts for 35% of the consumer’s overall credit score:
- This is why it is important not to close out any active credit card accounts
The mixture of types of credit makes up 10% of consumer credit scores:
- Is recommended to have different types of credit tradelines in order to maximize your credit scores
- Instead of just having credit card accounts, it is better in maximizing credit scores by having a combination of credit cards, installment accounts, auto loans, department store cards, personal loans, mortgage loans
10% of the overall credit score is due to new credit accounts and/or credit inquiries:
- Whenever you apply for new credit, the creditor will pull a hard credit inquiry
- Hard credit inquiries will cause a drop of 2 to 5 FICO points
- However, the drop is only temporary
- The credit score drop from a hard credit inquiry will go back up in three to four months
- Hard inquiries will remain on the credit report for two years
- Soft credit inquiries do not drop credit scores
- New debt on your credit report will lower your credit scores
- For example, a new car loan will cause a drop in your credit scores
- However, as the balance goes lower, your credit scores will increase
Aged credit tradelines account for 10% of your credit score:
- Many consumers want to close credit card accounts with zero balances they do not use
- Why pay an annual credit card membership fee on credit cards you don’t use
- That annual fee is a bargain on how strong that aged credit card is for your credit profile
- The older a credit card account is, the stronger positive impact the card has on your credit scores and credit profile
- The average age of your credit tradelines accounts for 10% of your credit score
Pros And Cons Of Being An Authorized Credit Card User
Many credit card companies will report the main credit card user’s credit profile to the authorized user as well. The main credit card user can request a family member and/or friend to be added as an authorized user. The benefits of being an authorized user are if the main user pays their bills on time and has a low credit card balance, it will report on the authorized user as a positive. However, if the main credit card user is late on their monthly payments and has credit card balances maxed out, it will do more damage than good for the authorized user.
GCA Mortgage Group strongly advises against having an authorized user credit card unless it is absolutely necessary.
Increasing Credit Scores By Correcting Errors On Consumer Credit Reports
Every consumer is entitled to one free credit report once a year from Experian, Equifax, and Transunion. Consumers are highly advised to take up on this offer and review their credit reports for any errors. If there are any errors or the credit report does not show on-time paying credit tradelines, you need to contact the creditor and the credit bureaus and have them correct this. The credit bureau will initiate an investigation once they receive the consumer credit dispute request. The bureaus have 30 days to fix the errors on your credit report. Consumers can do a credit dispute via USPS, online, or by telephone.
Contact Information To Credit Bureaus
Here is the contact information for the three major credit reporting agencies:
- Consumer Dispute Center
- P.O. Box 2000 Chester, PA 19016
- Online: https://dispute.transunion.com
- Phone: 800-916-8800 – 8am-11pm EST
- P.O. Box 4500 Allen, TX 75013
- Online: https://www.experian.com/consumer/upload/
- Phone: (714) 830-7000
- P.O. Box 740256 Atlanta, GA 30374
- Online: https://www.equifax.com/personal/disputes
- Phone: (800) 846-5279