Right now Buyers are out looking for house more so than I have seen in recent years. This is a good sign for the Housing Market, but unfortunately many of those Buyers are not in a position to purchase, because their credit. When I break this news to them, they always ask, How Can I Improve My Credit? Answering that question is easy, what is not so easy is what immediately follows that initial question, How Can I Fix My Credit Quickly?
Almost all these Borrowers have a sense of urgency, because in many cases they have been out looking at houses, without first talking to a Loan Originator, or a Realtor who will guide them to a Loan Originator. So when I tell them that their Credit Scores are not high enough to meet the Guidelines for the Mortgage Programs that are around today, they only want to know one thing, How Can I Fix My Credit Quickly? They have found a house that they have fallen in love with, and want to purchase it right now.
Some times even though the Credit Scores are low we can get them up within 30 days if the Borrower just does a few minor things. But most of the time the fix is not one that can be done that quickly. Even though there might not be a quick fix for real low Credit Scores, determining what needs to be done to fix them is pretty simple. There is nothing magical about Credit Scores, you do not have to be a rocket scientist to figure out what needs to be done once you know what makes Credit Scores go up or down.
The Three Components That Have The Biggest Impact On Credit Score Are: Credit History, Years of Credit, and Available Credit. The first two are time related, therefore, it will take time for them to have an impact on the Credit Score. The third however, can produce very quick and substantial results if the Borrower has the funds to do what needs to be done.
- Credit History: Represents 35% of a Credit Score, and it is the history of how well you have paid your bills during the time you have had credit. However, late payments, charge offs, or collections that are on the credit report, but have not reported for two years or more, very little impact on a credit score. In fact it is better to not pay off these collections, because that could actually bring down the credit score. That is because it will bring the last reporting date current again, and will now be reported as a current late once again. That is a double edge sword, because most of the time you will need to payoff collections regardless how old they are in order to qualify for most of the Loan Programs today. Late payments can lower your Credit Score quickly, but it takes much longer to bring credit scores back up by just simply paying your debts on time.
- Years of Credit: Also know as length of credit. This simply what it says. It is the number of years that you have had credit, the longer the number of years with good credit the higher the score. This represents 12% of a Credit Score.
The third major component as I stated above, is the one that can quickly raise or lower Credit Scores. Therefore, it is the best and quickest way for a Borrower to quickly increase their Credit Scores if they have the funds to do what they need to do.
- Available Credit: Rrepresents 30% of a Credit Score. Available Credit is the amount of credit that is available to a Borrower presently. In other words how much of the credit limit on the cards is still available. If the balance on a credit card is over 30% of the available credit limit on the card, it will have a negative impact on the credit score. And if the Borrower has gone over the Credit Card Limit, it will have an even bigger negative impact on their credit.
So the answer to both "How Can I Improfe My Credit?" and "How can I Fix My Credit Quickly?" Is to pay down the balance on credit cards to less than 30% of the Credit Card Limit. It is that simple if the Borrower has the necessary funds to do that. Depending on the number of credit cards, and how close they were to maxing out the credit card limits, will determine if it is a quick fix or not.
Info about the author:
George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or email@example.com