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Communicate the "How to" Increase Credit Score for Homeownership

By MC Griffin Campbell

Real Estate Broker/Owner with HHMC Hollywood Homes by MC

January 25, 2011 01:21 PM

Improving Your Credit Score: A Need to Know

FACT SHEET FOR HOME BUYERS

As a Realtor, I am in the Hollywood/Los Angeles community quite a bit, door knocking-greeting and meeting people in local businesses, on the streets, etc. My objective: to help educate them and provide more information on Homeownership.

Their main concerns are: Improving their Credit and Down Payment Assistance:

Note: (Look out for more information on "Down payment Assistance" in my upcoming-blog-Fact Sheet).

For your information, this fact sheet will deal only with Credit Score Information.

Most people responded:

1. I don't think I have good credit

2. My low credit score will keep me from purchasing a home

3. What can I do to improve my credit score?

4. Is there information out there to help me increase my credit score

5. How do I go about getting pre-approved for a mortgage?

This Fact sheet is to inform potential first time home buyers of what they need to know and do to increase their credit score and what you need to do to get pre-approved. First thing first: Be informed and empowered regarding your credit score. Here's how:

Get to Know your credit score

Credit scores range from 300 to 850, and the higher, the better. They're based on whether you've paid personal loans, car loans, credit cards, and other debt in full and on time in the past. You'll need a score of at least 620 to qualify for a home loan and 740 to get the best interest rates and terms.

You're entitled to a free copy of your credit report annually from each of the major credit bureaus:

(a) Equifax, Experian, and TransUnion

(b) www.annualcreditreport.com

Correct errors on your credit report

If you find mistakes on your credit report, write a letter to the credit-reporting agency explaining why you believe there's an error. Send documents that support your case, and ask that the error be corrected or removed. Also write to the company, or debt collector, that reported the incorrect information to dispute the information, and ask to be copied on any materials sent to credit-reporting agencies.

The older and smaller a collection account, the more likely the collection agency won't bother to verify it when the credit bureau investigates your disputes.

Paying Bills on time is a good thing

You may be surprised at the damage even a few late payments will have on your credit score. The easiest way to make a big difference in your credit score without altering your spending habits is to diligently pay all your bills on time. You'll also save money because you'll keep the money you've been spending on late fees. Credit card or mortgage companies probably won't report minor late payments, those less than 30 days overdue, but you'll still have to pay late fees.

Paying off your installment loans (mortgage, student loans, auto) can help your score, but typically not as drastically as paying down or paying off-revolving accounts, such as credit cards.

Another good way to boost your credit score is to pay your credit card bills in full every month. If you can't do that, pay as much over your required minimum payment as possible to begin whittling away the debt. Stop using your credit cards to keep your balances from increasing, and transfer balances from high-interest credit cards to lower-interest cards.

Lenders like to see a big gap amount of credit your're using and your available credit limits. Getting your balance below 30% because of credit limit on each card can really help. While most debt gurus recommend paying off the highest rate card first.

How to Use Credit to your advantage

Credit scores are also based on how much credit you use compared with how much you're offered. Using $1,000 of available credit will give you a lower score than having $1,000 of available credit and using $100 of it. Occasionally opening new lines of credit can boost your available credit, which also affects your score positively.

Take care with the length of your credit

Credit rating agencies also consider the length of your credit history. If you've had a credit card for a long time and managed it responsibly, that works in your favor. But if you stop using your oldest cards, the issuers may stop updating those accounts at the credit bureaus. The accounts will still appear, but they won't be given as much weight in the credit-scoring formula as your active accounts, said Craig Watts, an executive at Fair Isaac, one of the leading credit scorers. That's why Ferguson often recommends to her clients that they use their oldest cards every few months to charge a small amount

However, opening several new credit cards at once can lower the average age of your accounts, which pushes down your score. Likewise, closing credit card accounts lowers your available credit, so keep credit cards open even if you're not using them.

Time Factor involved: Be Active and patient during the process

It can take time for your credit score to climb once you've begun working to improve it. Keep at it because the more distance you put between your spotty payment history and your current good payment record, the less damage you'll do to your credit score.

A long term solution for more troubled account is to ask that they be re-aged. If the account is still open, the lender might erase previous delinquencies, if you make a series 12 or so on time payments.

Goodwill Adjustment

If you've been a good customer, a lender might agree to simply erase that one late payment from your credit history. You usually have to make the request in writing, and your chances for a "goodwill adjustment " improve the better your record with the company (and the better your credit in general). But it can't hurt to ask.

Note: If you have questions about the pre-approval process, call me and I will help navigate you through the process.

M. C. Griffin Campbell, DRE# Broker License #: 01819507

Short Sales and Foreclosure Resource (SFR) Certification, Seniors Real Estate Specialist (SRES)

Coldwell Banker, 9000 Sunset Blvd. #100, LA 90069: 323-464-5431: 323-382-4364