Credit Scoring Part IV: Getting Ready to Buy a Home

  If someone is interested in buying a home, it is of the up most importance that they make every effort to increase their credit scores before they start the process, or at least very early in the process. This is even more important if they already know that there are some issues that they will have to deal with (late payments, collections, judgments, no credit etc.). I like to have my clients come in at the very beginning of the process so we can review their credit report and put together a game plan to get them into a home.

 Many people are already watching their credit scores through one of the many sources on the Internet. The problem with those scores is that they are not "weighted". Different credit providers place more or less importance on what is on the credit report. This is why someone can have their credit scores from a source like say, FICO.com, and go to buy a car, and their credit scores at the car dealership.

 Once you have your credit scores where you need them and are ready to make an offer on a home you still need to be careful of how you handle your credit. Here is a list of dos and don'ts I give to my clients when we are in the process of getting a loan approval:

Don't Apply for any NEW Credit of any Kind: Any new inquiries on your credit report will have a negative effect on your credit score. Don't do it!!!!

Don't Pay Off Collections and Charge-offs: Unless I specifically ask you in order to get a loan approval. Generally, paying off old collections causes a drop in the credit scores. Lenders are mainly interested in the activity of the past two years. There are other ways to deal with collections and charge-offs but I will not cover them now (I can't give away all of my secrets...LOL).

Don't Close Credit Card Accounts: If you close a credit card account, it will affect your available credit ratio and your length of credit history ratio. Your credit scores will go down. Wait until after your home loan is closed if you really want to close the account

Don't Over Charge Existing Credit Cards: Maxing out your credit cards is one of the fastest ways to bring your credit score down. Your credit scores could drop over 100 points in just one day!

And....always contact me before you buy anything even if you use cash!

Stay Tuned for Credit Scoring Part V: How Does and Low Credit score Affect ME (and how much does it cost me)?