April 9, 2013
Since the housing maket is at its peak come springtime, more and more people find themselves wanting to buy their first homes. Many young people have little idea of where to start and some even find themselves not being able to qualify for home loans due to poor credit scores. This article by Keith Loria is a great source of how to strengthen a poor credit score so you can, one day soon, own the home of your dreams.
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Low Credit Scores and Mortgages - How One Affects the Other
By Keith Loria
When it comes to obtaining the mortgage that’s right for you, a low credit score can cause more harm than good. In fact, a low credit score can cost you tens of thousands of dollars, or worse, it can keep you from getting a loan at all.
Your credit score is an indicator that lenders use to establish how much of a risk you are when evaluating how likely you are to repay the loan. The higher your score, the less risk you are and the better rate you will get.
If you find your score is low due to an error, it’s not always an easy fix. Disputing a negative inaccuracy involves hours of phone calls, tracking down documents and convincing the proper people to help.
If buying a home is on the horizon, it’s a good idea to check your credit score sooner rather than later. By starting the process early, you’ll have time to fix any problems that may arise along the way. Begin by pulling your credit report and your credit score to see where you stand. If your score is above 760 you should be fine. If not, you could be in for some trouble as you make your way through the home-buying process.
For those with a low credit score, the first thing you want to do is look for errors in the report. This can include late payments that were actually paid on time, debts you paid off that are shown as outstanding or even old debts that shouldn’t be reported still (negatives are supposed to be deleted after seven years).
Once you find the problem, you can do something called rapid rescoring, which can help increase your score within a few days by correcting errors or paying off account balances. This type of fix can only be done with a lender who is a customer of a rapid rescoring service. If you’re eligible to take advantage of rapid rescoring, updated information can be posted to your credit report in just a few days. While it’ll cost you anywhere from $100-$300, it’s worth it in the long run as it could save you thousands on your loan.
Another way to improve your credit score, if you have time, is to pay down your balances on credit cards. If you do this for a few months, it can help substantially. If you’re trying to improve your credit score, one thing you should never do is close unused accounts. Doing so will actually hurt you as it changes your utilization ratio, which is the amount of your total debt divided by your total available credit.
Also, make sure not to pay any bills late. Even if you’ve done so in the past, make it your mission to never do it again and keep your payments timely and your balances low.