The Ultimate Home Buyer Guide to Credit Improvement

Not Now.  Not No!

Credit improvement is not something you should spend money on if you are trying to apply for a mortgage.

Lenders that are not willing to take the time to work with credit challenged buyers will often leave you with an answer of “NO” without a great explanation of why, or how can you fix it so you can get into a position to qualify for a loan.

In most cases, NO only means Not Now.  When it comes to permanently improving and preserving your credit scores, time and best practices cure most challenges.

Trusting the opinion of an inexperienced or unmotivated loan officer could leave you with a false impression of what your options are moving forward.

If your loan officer is not willing to invest in you as a future client, find a professional and experienced loan officer that solves problems as a career choice.

Working with a professional loan officer will help you set realistic time line expectations, and give you an expert personal guide through any steps required to become a home owner.

Finding an Expert to Help

How lenders are paid has a lot to do with the level of service you might be getting.

Many loan officers are paid a commission only when a loan is completed, others are paid only to take an application and run your credit, and have no experience or interest in helping you qualify for a mortgage in the future.

There is no financial incentive for a loan officer to take the time to help you understand why you do not qualify for a home mortgage at this point in time, but don’t let this frustrate you!

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There are many professional loan officers out there that have years of experience in the areas of credit score improvement and preservation.

Loan officers that specialize in helping first time home buyers typically have a passion for helping you to understand and navigate good credit habits enjoy investing time and expertise to help you clear the hurdles slowing you down from qualifying.

Top 3 Ways to Build Good Credit

One of the most common reasons I’ve encountered for why folks have bad credit, is because they do not see a clear and simple path to building good credit.

80% of your credit score is calculated based on 3 factors.  It is my experience that being aware of these factors, and following some simple best practices, you can overcome any credit challenge.

I actually learned this next lesson the hard way, through personal experience.  I have since shared this story, and experience with many, many people.

I had credit challenges in a past life, and for the first time in my life, was not able to make payments on an automobile, and a credit card.  It was such a traumatic experience for me, that I stopped using my credit altogether.

I thought, if I stop using credit, then I can’t get bad credit…..I couldn’t have been more wrong.

7 years after that decision, my credit scores were almost 100 points lower than when I had bad credit.  Bummer.

The tips and tricks that follow have worked over and over again.

On Time Payments – 35% of Your Score

I then got to work building good credit.  I started with a secure credit card, and Within 12 months, my credit was 120 points higher, and good enough to buy

On time payments is the absolute largest factor in calculating your credit score.  It stands to reason then, that not having on time payments is about the worst thing you can do to your credit score.

If you find yourself in a pinch, that’s ok, life happens.  We’ve all been through it.  When you find yourself in a tight financial situation,

There are several things you can do to protect and preserve your credit score:

• Your payment is not reported late until 30 days it’s due date.  Even if your credit card company says you are late, and even charges you a late fee, it is not reported to the credit bureaus until it is 30 days delinquent.  This can give you some much need time and preserve your score.
• Know what reports to the credit bureaus, and what does not.  Not every utility or service reports to the credit bureaus.  Household expenses such as cable bills, and even utilities, can go late without affecting your credit score.
• If you find yourself in between a financial rock and a hard place, and a delinquent payment is inevitable, you’re better off going without Starbucks or Cable TV than taking a 3o day late on your credit report.

Credit Card Balances – 30% of Your Score

Also called “utilization of debt”, this calculation looks at the proportion of your credit card balance as a percentage of your high credit limit.

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As a general rule, your credit score will suffer significantly if your credit card balance is greater than 25%-30% of your high credit limit. Keeping credit card balances low is by far the quickest and easiest way to improve, and preserve good credit scores.

Length of Credit – 15% of Your Score

A healthy credit score is one that has zero accidents in as many days as humanly possible.  The longer you have open credit lines in good standing, the stronger your credit profile becomes.

Long term stability builds a solid foundation that will lift your scores higher and higher as your pattern of good credit history pays off.

What You Need to Know Multiple Inquiries

The following is an excerpt directly from MyFico.com.  This question comes up a lot, so I want to make sure that you get it directly from the bureaus.  This is only once excerpt, you can read the entire article here.

Looking for a mortgage, auto or student loan may cause multiple lenders to request your credit report, even though you are only looking for one loan.

To compensate for this, FICO Scores ignore mortgage, auto, and student loan inquiries made in the 30 days prior to scoring. So, if you find a loan within 30 days, the inquiries won’t affect your scores while you’re rate shopping.

In addition, FICO Scores look on your credit report for mortgage, auto, and student loan inquiries older than 30 days. If your FICO Scores find some, your scores will consider inquiries that fall in a typical shopping period as just one inquiry.

For FICO Scores calculated from older versions of the scoring formula, this shopping period is any 14 day span. For FICO Scores calculated from the newest versions of the scoring formula, this shopping period is any 45 day span.

Each lender chooses which version of the FICO scoring formula it wants the credit reporting agency to use to calculate your FICO Scores.

Quick Credit Boost Things You Can Do Now

There are several ways you can get a quick boost to your credit score.  And when I say “quick”, I mean a month or two instead of 6 months to a year.

• Check your credit for errors – If your intention is to qualify for a home loan, have your lender run your credit report.  A Tri-Merge Credit Report pulled by your lender is different from the consumer reports you can get online.  Review every line item for accuracy.  Common errors include payments showing for paid off accounts
• Review all of the credit lines with your lender.  An experienced loan officer will be able to walk you through what’s positively, and what’s negatively affecting your scores.  Most low credit scores are the result of not building good credit, and not necessarily bad credit.  An experienced loan officer may be able to find an opportunity to guide you to higher credit scores at no cost.
• Rapid rescore is a special service available through to your lender that allows you provide documentation directly to the credit bureaus and request an immediate correction and rescore.  There is a significant cost per credit item, per bureau for using this service.  The cost for this service cannot be charged to you, the consumer.
• OptOutPreScreen.com is a service created by the 3 credit bureaus, Experian, TransUnion & Equifax that allows consumers to Opt-Out of pre-screen credit card offers that you receive in the mail.  Opting out of pre-screen credit card offers bump your credit scores by 3 to 5 points and reduce junk mail in your postal, and email inbox.

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If you are like most people that visit this website, you’ve got a mortgage problem or an unanswered question and you’re having trouble getting answers.

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