Get Yourself Mortgage Ready with Credit Restoration
So you want to buy a house, how is your credit score? Are you in need of credit restoration?
Now is a good time to check your credit report for errors or improve it.
How credit restoration can help a with your mortgage. $100,000 mortgage costs a person with a good credit score approximately $580 per month and over $200000 over 30 years. The same home will cost the same person with a bad credit score approximately $265 more per month or over $300000 over 30 years.
If you want to save yourself and family approximately $3180 per year by just doing a bit of credit restoration then read on.
A credit score in the United States is a number representing the creditworthiness of a person, the likelihood that person will pay his or her debts.
Lenders, such as banks and credit card companies, use credit scores to evaluate the potential risk posed by lending money to consumers. Widespread use of credit scores has made credit more widely available and less expensive for many consumers.
FICO , originally Fair, Isaac and Company, is a data analytics company based in San Jose, California focused on credit rating services.
There are 6 steps that you need to follow to ensure that your credit restoration is at the highest credit score possible before you apply for a home loan.
Audit your credit report.
Is your credit report accurate? It’s believed that 4 out of 5 consumer credit reports contain errors. You need to check your credit report at least every 3 months and have any errors removed. It takes time to remove errors.
There are credit monitoring services that you can use to do this but you will be charged a fee.
Get rid of late payments records.
Just having one past due payment against your name can dramatically reduce your credit score. A recent past due payment can reduce your FICO score up to 50 points.
For every 10 points you increase your credit score on a $250,000 30 year loan, you could save over $100,000 in interest charges.
If you have a good payment history but have a late payment against your name that was just a one off then ask your lender to remove the 30 day late notice against your name. Most good lenders value your business and will be willing to make a one time exception and waive your lateness.
So you went through a rough patch, money was tight for a while and the odd bill got behind, but you have since established a solid payment history for the last 6 months, then ask your lender to re-age the account. Re-aging is the practice of reporting your account history from the time your payments became timely.
If you have proof the payment wasn’t late, simply send the front and back of the canceled check to your creditor with a brief letter explaining their error. Politely request that they immediately update the credit bureaus of the error.
Lower Your Debt Ratio
As part of your credit restoration you need to lower your debt ratio. 30% of your credit score is made up of your debt to credit ratio. This is mainly your revolving accounts. Ie credit cards.
The debt to credit ratio is the amount of debt you have as a percentage of amount of credit you have available to you.
If you are looking to buy a house, you need to get your balances (debt) down to as close to a zero balance as possible.
We know this is not always possible. So please consider this when deciding which credit cards to pay off, and how much to pay off each one: the most noticeable benefit on your credit score takes place when your debt ratio is at 70%, 50%, 30%, 10%, or 0%.
So if you have a number of credit cards is pays to have them paid off evenly so you have none of them maxed out.
An example is if you have one card with $10000 available credit and another card with $1000 available credit and your total debt is $5500, you should transfer your balances or pay off your cards so that there is $5000 on the $10000 card and $500 on the $1000 card.
In this way, both credit cards will be at a 50% debt to credit ratio.
Maintain at least 3 open tradelines with $1500 credit limits.
A seasoned tradeline is a line of credit that the borrower has held open in good standing for a long period of time, typically at least 2 years. The “seasoned” part simply implies that the account is aged or that it has an established history.
Many lenders require applicants to have at least 3 accounts with a minimum of $1500 credit limit. Check your credit limits early and request credit limit increases every 6 months until you reach your goal. Increasing your limits will also reduce your debt ratio provided you do not increase your balances as well.
Don’t close old accounts.
15% of your credit score is based on the length of your credit history, in addition to your debt to credit ratio.
So if you have an old card, or cards that you paid off to $0 – NEVER CLOSE THEM! Yes they maybe costing you in fees but closing a card will greatly decrease your debt to credit ratio, as well as shorten your overall length of credit history.
Even if they have a higher interest rate than your newer cards, it is best to put them in a drawer and use them once every six months to buy gas to keep them active, then pay off that amount in full.
If you went through a rough patch with these cards then reread Item 2.
Do your entire mortgage shopping in 45 days.
Ten percent of your credit score is based on a record of how many times your credit score report has been viewed by a third party in the past year. The higher the number of inquiries for credit (The number of times you apply for credit that result in your credit report been accessed by a third party), the more your FICO score is affected.
The FICO scoring model works this way so that consumers are discouraged from making too many inquiries and “spreading themselves thin”. However, the FICO scoring model does not want to discourage consumers from making inquiries AT ALL whenever they are shopping for a car or house so FICO groups all auto and mortgage inquiries into one that are made over a 45 day period.
As you will be shopping around for the best mortgage rate you can have your credit score pulled an unlimited number of times within a 45 day period. All inquiries within that period count as only one inquiry. As every point matters, it is important to have as plan so that you are able to do your mortgage rate shopping in a 45 day period.
If you require more help with credit restoration then you can download the Credit Repair Magic software to help you complete the tasks listed above.
Or you can view this free presentation on credit restoration that covers
How to Remove Unauthorized Credit Inquiries…
So you can finally get the credit score you deserve!
How to Legally Erase Credit Errors…
Even if they’ve been “verified” by the credit bureaus.
How to Boost Your Credit Score 50 Points in 30 Days Without Credit Repair
You don’t need to invest in pricey attorneys or credit repair services to get a credit score increase.
How to Get Guaranteed Credit Card Approval…
You can get approved for a $5,000.00 credit limit even if you had a recent bankruptcy!