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Au contraire, my real estate friends. . . Opinions vary about the extent and severity of future fallout from the sub-prime lender melt-down. But it is clear that credit scores will become ever more important as even prime lenders are raising minimum required credit scores.
A difference of only one number in a credit score can determine your rate and whether you can get some loan products at all. And since credit scores range from 300 to 850, the importance of having the best score possible cannot be overstated.
Here are some concrete actions you can take to improve your credit score.
Important: there is a time lapse between taking action and the impact on your credit score. Allow plenty of lead time. You can take actions yourself, or get help from someone who is more informed about possibilities - your loan consultant. (Don’t have one? Call Team Sedenquist for a referral!)
1. Get a credit report. But remember- each time someone runs a credit report on you, it lowers your score. There are several websites to visit.
www.myfico.com
www.freecreditreport.com
www.annualcreditreport.com
www.ftc.gov
A credit report that you order yourself will have different (usually lower) credit scores from scores you get in connection with a mortgage because a different matrix is used for mortgages. First, make sure all the information is accurate. If not, call the creditor and get it corrected. Ask your loan consultant how to deal with creditors if adverse information is accurate. Myfico.com contains extensive information about credit scoring. It explains the ingredients that make up a credit score and shows specific percentages that each ingredient contributes. What it won't explain is the exact numerical impact that each ingredient has on the score itself. But you can improve on the ingredients.
2. Payment History: pay all accounts on time. Late payments in the most recent six months
have the greatest impact. Late payments more than two years ago are far less important.
3. Balances Carried: keep balances low compared to allowed limit. It is better to owe $5,000 on each of two credit cards with $10,000 limit on each rather than $10,000 on one card with $10,000 limit. If possible, re-distribute to get balances at less than 50% of the limit or -- request increases of limits to maximize the spread between balance and limit. Have creditors use credit history (not a credit report) to grant the increase. If they need a credit report – stop: as that lowers your score.
4. Credit History: The longer the (good) credit history the higher the credit score. Do not close several old accounts with low balances and transfer these balances to one new account just to get a lower rate. Your credit score will suffer because you lose the benefits of old credit and you also narrow the spread between balances and limits. Credit inquiries count against your score,
so keep these to a minimum. Inquiries that are job-related, insurance-related, or account
reviews will not count against you. Requests for new credit will.
5. Dealing with judgments, liens, and collections is counterintuitive. Any action, whether it be incurring them or paying them off has a negative impact on your score, and the more recent the action, the greater the impact. So -- if they exist, speak with your loan consultant before paying them off. It may be best to wait, then pay them off concurrent with the closing of your loan.
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