Home Buyers Should Consider Maximizing Credit Scores For Home Loan
Maximizing Credit Scores For Home Loan:
Your credit scores will dictate the interest rates you get from a creditor, especially a mortgage lender. Creditors view your credit scores as the risk level. Mortgage loan borrowers should consider maximizing credit scores for home loan prior to the mortgage application process. The higher your credit scores, the lower risk you are as a consumer and the lower your interest rates are. In the mortgage industry, your credit scores will be the determinant on what mortgage rate you get so maximizing credit scores for home loan is extremely important to get the best rates. For you to get the lowest mortgage rate possible on a residential mortgage loan, you need credit scores north of 740 FICO. Credit scores also determine what your insurance premium will be. The higher your credit scores, the lower your insurance premium. Employers also do credit checks and use your credit history as part of your background investigation. Employers view lower credit score candidates as those who are not responsible. Everyone can have superior credit as long as they monitor their credit report and use their credit cards the correct way and get a variety of credit and pay their bills on time. We will discuss on ways of maximizing credit scores for home loan on this blog and ways of improving your credit scores if you have lower credit scores.
Everyone Can Have Great Credit: Maximizing Credit Scores For Home Loan
If you are planning on purchasing a new home or refinancing your home in the near future, you should start planning on improving your credit scores and have a goal to have a 740 plus FICO credit score. Improving your credit scores does not happen overnight and takes time. Sometimes it can take months while other times, it can take a year or more depending on how bad your credit is. For those who just filed bankruptcy or just had a foreclosure, deed in lieu of foreclosure, or short sale, their credit scores might be in the high 400’s or low 500’s. The good news is that for these folks, their credit scores will gradually improve over time and as time passes, the bankruptcy or foreclosure will have lesser of an impact on their credit scores. After two years, most derogatory items normally have no impact on credit scores. To expedite boosting your credit scores, you need to re-establish your credit scores by adding positive credit. Secured cards are a great example. Each secured credit card you get will boost your credit scores by 20 or more FICO points. Get 3 to 5 secured credit cards if you have just filed bankruptcy or had a foreclosure. I have seen mortgage loan borrowers have credit scores of 700 FICO plus after they filed bankruptcy or had a foreclosure after a year. The longer your re-established credit is, the better your credit scores will be.
Maximizing Credit Scores For Home Loan And Tips On Improving Your Credit Scores
1. Hard inquiries: Everytime you apply for new credit, you will get penalized for a hard inquiry. Each hard inquiry will drop your credit scores by 2 to 5 points. However, the drop will be offset by the new credit the borrower will get so do not apply for credit that you do not have a chance of getting approved. For example, it will not be wise to apply for unsecured credit cards when your credit scores are in the 400’s or 500’s. Do not go on a credit card applying spree. Only apply for one or two credit cards every three to six months.
1. Have a credit balance below 25% of your credit limit on your credit cards: Do not have a balance of greater than 25% balance of your credit limit on your credit cards. Having maxed out credit cards will plummet your credit scores. However, the drop is just temporary and when you pay down your credit cards, your credit scores will go right back up.
2. Make sure you pay your bills on time: Never be late on your monthly payments. One late payment will impact your credit scores by 40 or more points and mortgage lenders do not want to see any late payments for the past 12 months. One late payment will take over 6 months to recoup the credit score drop. Even if your minimum payment is $10.00 and you are late, your credit scores will drop and you will have a very negative impact on your credit report.
3. Do not close out credit cards you do not use: Never ever close out credit cards or department store credit cards that you do not use. Closing out an aged credit account that you do not use will hurt your credit scores. Part of your credit scores are a history of credit and the credit available and you have worked hard to have such credit cards so never close them out.
4. Diversification of credit:
Diversification of credit will maximize your credit scores. You can have three credit card accounts but having student loan accounts, auto loan accounts, mortgage account, and other revolving or installment credit will maximize your credit scores.
5. Monitor your credit report and see what you need to do in maximizing credit scores for home loan
Get your annual credit report from each of the three credit reporting agencies by clicking on www.annualcreditreport.com . Don’t request all of them at the same time. Get one credit report from each credit bureau every four months. For example, you are entitled a credit report from Transunion, Experian, and Equifax. Get one from Transunion in January, get one from Experian in April, and get one from Equfax in August. This way you can monitor your credit report three times a year for any errors.