If you have a pulse, you have probably heard of something called the "credit crunch". While most recently this has mainly pertained to banks and financial institutions not lending to each other, residential mortgage lenders have also tightened their credit criteria for lending to consumers. It used to be that if you had a 700 credit score, you were golden. Conventional and FHA loans didn't have as many interest rate pricing adjustments as they do now.
This is why it is important for you to understand your credit report if you are in the market to buy a home. The first step is to acquire a copy of your credit report and review it, preferably with someone who understands credit scoring. Below are a few things to look for that could be hurting your scores that are simple to do, even on your own. Take it from a guy who has been working to help people improve their credit ratings for nearly a decade, some simple steps can make a dramatic difference in your credit scores. Here's are some of the most simple:
It used to be that credit cards that are "maxed out" or over the limit would decrease your scores, but the Fair Issac and Company (FICO) scoring system has released a newer version that now goes by the aggregate of the accounts. This means that they add up all available revolving credit (credit cards's limits) and total the balances. They create a ratio of the aggregate of the balances and divide by the total amount of available credit. If this ratio is greater than 50%, meaning that you have used more than half of your total available credit, points are deducted.
So, the first step is to check to make sure that all credit limits (also known as "high credit") are correct. Some credit card companies report the high credit as the highest that the card has ever been charged. If you have a card with a $5000 limit but you have only charged a maximum of $1000 on the card at any given time, the card issuer may only be reporting the high credit as $1000. This can hurt when calculating the aggregate ratio and lower your scores for really no reason.
To get this remedied, you can write letters to the credit bureaus disputing that the high credit on the account is not accurate. You can also do this online.
However, the upside of this change in using the aggregate is that this new scoring system hasn't been adapted by everyone so some may still be using the older version. If this is the case, the aggregate doesn't matter as much. It is still important that you verify that the high credit is correct for each card. Then you can manipulate the cards as such:
1. Cards with a balance of more than 50% of the high credit counts against you. Obviously, "maxed-out" and over-the-limit cards are bad also. Instead of having one card with $5000 and the other cards being empty, spread the balances around the cards to achieve a better score.
2. To improve your scores even more, try to keep them under 33% of the limit.
3. For optimum scores, keep them between 0% and 24.99% of the limit. This shows "restraint" in their usage.
4. Having no balance actually counts against you. The mentality is that you aren't showing restraint by not using them because you could have them locked up in a drawer somewhere. Also, with a zero balance, no payment is necessary and therefore there can be no payment history.
Home Equity Lines of Credit(HELOCs) are another culprit that could be hurting you that is easily remedied. Often, lenders report HELOCs as "revolving" credit as if they were credit cards. This obviously hurts because, for example, if you used your HELOC to purchase your home, chances are you still owe most of whay you borrowed. When this amount is included in the aggregate for the revolving accounts, even if you have no credit card balances, the HELOC can cause much harm when reported this way.
This is an easy fix as all you need to do is to contact the credit bureaus and dispute it or provide them with an account statement, or the actual mortgage, to get them to correct it to report as a mortgage loan and not a revolving account.
However, if you have a large HELOC that is reporting as a revolving account and is reporting the balance and high credit accurately, you may want to leave it alone. This is especially true if you have some credit cards that are maxed out. The reason is it will decrease your revolving account ratio and improve your scores as it is.
I have been working to help people improve their credit scores for nearly a decade. I believe one aspect of my business that sets me apart from other loan officers is that I function as a Mortgage Advisor. Rather than work to qualify you for a loan based on your current situation, I look to see which areas can be improved. We will work on those areas and then qualify you for a better program than you would have originally qualified for. It may take up to an extra month, but I believe it is worth it since it could save you tens of thousands over the life of the loan.
In working with clients, I have been able to improve their scores from as little as 10 points to as much as 105 points. For more information about credit repairing, visit my website at www.dynamicfundingonline.com or you can email me at eboucher@dynamicfundingonline.com
Whether you are in the market for a conventional loan, FHA loan, VA loan or trying to qualify for the rural housing program, it can only help to check your credit and verify that your scores are as high as they should be. I work primarily in Hartford and Tolland Counties and specialize in VA loans and Rural Housing financing. If you have been denied for a mortgage loan because of your credit and are looking to purchase in Connecticut, you should contact me today to see if we can improve your credit. It could be the best 15-minute investment of this year!
Eric Boucher
Dynamic Funding Solutions, LLC
East Hartford, CT
www.dynamicfundingonline.com
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