Credit Repair - Improving Credit Scores for a Mortgage or Refinance Home Loan
This resource is a courtesy of Veracity Credit Repair - the first step in the home mortgage loan process for loan officers and borrowers alike.
Preparing for a home loan long before your closing date is a wise investment, especially in relation to your credit scores. The reason is simple - presuming you meet certain basic qualifications such as income requirements and current employment, the single most important factor in determining your loan qualification and term interest rates is your FICO score.
Your credit score is an ever-changing number, used to qualify you for a loan and to calculate your interest rates and loan package offers.
As a rough guideline, for every 20 points of your FICO credit score gained upwards, your interest rate drops approximately 0.25 percent on a 30-year fixed rate mortgage or refinance. Similarly proportional interest rates are seen with other loan types.
Example: if your FICO is a 620 versus a 700 credit score, you'll pay 1% "extra" in your interest for the complete term of your loan. With an average home selling for $275,000, improving your credit score by 1.0% is substantial. Looking at 6% versus 7% over thirty years, the difference amounts to about $65,000 in interest charges and about $180/month on your mortgage statement. month after month, year after year.
For most people $180/month - for the same home financed with different credit scores - is well worth saving each month for other needs. As a result, optimizing your FICO score before closing on a mortgage is extremely important.
So how can you improve your credit scores quickly?
In short, FICO scores are a risk indicator, and credit scores are generated from vast warehouses of data that are used to evaluate and assign a number as to what your risk factor on loan default.
- About 35% of your credit score is determined by historical use of credit. This means positive records such as the number of years you've responsibly had credit, and it also takes into account any negative items that have been reported in the past seven years - examples being late payments, charge-offs, accounts that fell into collections, etc. Correcting invalid "negatives" on your credit reports will help optimize your score. The credit repair process does require patience and planning, however, so it is suggested you attempt to allow at least 4-6 months for optimization via credit repair. ? Another third of your score is determined by your use of revolving credit - typically this being the use of credit cards. Having several recently-obtained credit cards will lower your score in the short term, and carrying over a near-limit balance on existing cards is also a negative influence. If possible, pay down your debts and remain at all times of the month under 30% of utilization (maximum limit) for several months prior to financing.
- While these fractions are rough estimates, approximately a final third of your score is a combination of what types of credit you use, such as loans or credit cards, and the consequent utilization of these. Recently extended lines of credit - a new credit card or a recent vehicle loan for example - can also lower your score in the short term. If you will be obtaining a mortgage in the next 3-6 months, it is strongly advised that you not open large new accounts during this period.
Considering these three factors, optimizing a credit score focuses on two strategies: paying down existing balances on credit cards and other revolving credit lines to raise your credit ratings, and disputing any inaccurate negative information that appears in your credit history. When it comes to disputing negative information on your reports, it is best to work directly with the credit bureaus from purchased credit reports - reports can be obtained for free, but the bureaus are allowed 45 days (instead of 30 days) to respond to any disputed information.
As a concept, removing negative information from your reports tends to be classified as one of the traditional "credit repair" services. Presuming that you have chosen a professional credit repair company, optimization of your reports and score can be the difference between paying that $180/month "extra" in our example.
All consumers have different information on their reports, but with over 75% of all credit reports shown to contain erroneous information, it is highly likely your FICO score can be improved using a service dedicated to acting on your behalf. meanwhile saving you time, money, and stress.
Because your goal is to obtain the best loan possible, giving yourself six months or more prior to your financing prepares to present the highest FICO score you can achieve - securing lower interest rates for your family, and a better loan package overall.
To learn more about the benefits of credit repair, or to consult with the leading specialists for consumer mortgage preparation, please visit Veracity Credit Repair. Veracity provides both credit consulting and specific credit report repair services, and is the leading mortgage loan solution for both mortgage brokers and consumers.
By providing both a dedicated broker division and borrower credit repair consultants throughout the optimization and loan process, Veracity assists both clients and loan officers. Veracity's hands-on expertise and proactive repair create higher closing rates for brokers, easier qualification of borrowers, availability of better loan offers, and a superior level of service and support means all parties can smoothly proceed with their financing needs.
Remember, the faster you retain expert credit repair assistance, the faster you can expect to obtain the lowest rates possible on your home loan.
|
