Do you find yourself wanting to take advantage of what many are calling a "buyers market"? Before you lay eyes on your future home, take a look at your current financial situation and, more importantly, your credit score. Your credit score plays a big part in lenders qualifying you for a home mortgage. It could play a big role in where you are headed, and what it will cost you.
The first step is to obtain your credit report and review the information that has been reported about you. Be sure to obtain your credit score in your report as well, as this is one of the most important factors in the mortgage loan process, especially when it comes to interest rates. A higher credit score means lower interest rates. Credit scores are numerical values that rank individuals according to their credit history at a given point in time. Your score is based on your past payment history, the amount of credit you have outstanding, the type of credit you use, the length of your credit history, and how many newly opened accounts you have.
Lenders use a process called underwriting, which is evaluating your ability and willingness to repay your loan. They judge your ability to repay by looking at the amount of your income, how stable your past earnings have been, and your past credit history.
This helps them to determine if you can afford the loan payments. If you have made payments on time in the past and have a clean credit report to show for it, you will be judged as being trusted to make payments on time in the future.
Before trying to secure a loan, it's best to obtain a copy of your credit report, view the credit score, and work diligently to repair a low score. You can obtain your credit report for free by visiting AnnualCreditReport.com. You are entitled to one credit report per year from each of the three credit reporting bureaus (Experian, Equifax, and TransUnion).
Credit scores range from 300-850 and, nowadays, anything less than 650 may be considered a high risk and you're less likely to get the best mortgage terms from your lender. The lender needs to feel confident that the terms of the loan will be fulfilled without a high risk. Without a good credit history and score, you may not qualify for the loan.
Many people want to own a home or make a large purchase at some point in their life, so invest the time now to be prepared later. Improving your credit score takes time, and there is no such thing as a quick fix. By following these tips, over time you will see improvements in your credit score.
Pay your bills on time – If you don't pay your bills on time, you will become delinquent and this can have a major impact on your credit score.
Don't miss payments – If you miss a payment, do your best to make the payment up and stay current. The longer you pay your bills on time, the better your credit score.
Collection accounts – If an account goes into collections for non payment this will stay on your credit report for 7 years.
Don't open new credit cards – Only have credit cards that you absolutely need. Having too much credit can adversely affect your score.
Beware of closing accounts – This too can adversely affect your credit as this lowers your total available credit and appears you are maxed out.
Making ends meet – If you are having difficulty with making on time payments and need some help, you can contact your creditors directly, or you may want to contact a non profit credit counseling office.
There are many other ways to help improve your credit. For more information on understanding credit scores, you can download a complimentary book on how to improve your credit score by logging onto www.consumercredit.com/creditbook. For more information or to speak with a certified credit counselor, call 1-866-464-5245.
Once you have a solid credit report, then it's time to think about a mortgage loan.
American Consumer Credit Counseling (ACCC) is a non profit 501(c)(3) organization. Founded in 1991, ACCC provides credit counseling, housing counseling, bankruptcy counseling, debt management solutions, and financial education nationwide. For more information, visit ConsumerCredit.com or call 1-866-464-5245.
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