Why Does My Credit Score Matter?
Get Mortgage Ready
Impact of your Credit Score on Homebuying
When you’re applying for a mortgage, your credit score has the most meaningful impact on the rates you’ll be offered. Typically, the higher your score, the lower the interest rates you could receive. Lenders will also look at your existing monthly obligations and your ability to repay those debts and decide whether or not they think you can afford an additional payment.
CREDIT SCORE BASICS
Most credit scores use the Fair Isaac Corporation (FICO) model, which grades consumers on a 300- to 850-point range, with a higher score indicating lower to risk to the lender. Generally, a score of around 740 or higher on the FICO scale is considered a very good to exceptional score.
7 Steps to Mortgage Ready Credit
Check Your Credit Reports
When you make your application, the mortgage lender looks for three main things for a pre-approval:
- Steady Income
- Down Payment
- Solid Credit History
Checking your credit report will let you see if there’s anything that’s hurting your credit. There are 3 main credit bureaus that report your score: Equifax, Experian & TransUnion. Each can vary slightly based on different factors, so it’s best to check all three of them. You can request a free report from each one.You can also check your credit score for free from resources like these:
Dispute Inaccurate Information
Sometimes simply correcting mistakes can help improve your score to get where you want to be. Misinformation can hurt your credit score (and raise your interest rate) or get your application denied. Get rid of any inaccurate information by disputing it with the credit bureau. If you have proof of the mistake, providing it will help ensure the mistake is removed from your report.Which Credit Report Errors can you dispute?
Pay Off Delinquent Accounts
Bury Delinquencies with Timely Payments
Calculate Your Debt-to-Income (DTI) Ratio
Divide total debt by total income to get DTI %
Set a Budget & Reduce your Debt
Don’t Create Any New Debt
Avoiding Credit Repair Scams
Remember, improving your credit legitimately takes time and effort. It’s important to understand that there is no quick fix. However, you need to be aware of the multitude of companies out there who claim they can erase your credit problems completely.
Make sure you recognize credit repair schemes before you become a victim.
Red Flags to look out for:
- If a company requires payment for services before they are provided to you. Under the Credit Repair Organization Act, companies cannot ask for payment until they have fulfilled the agreed-upon services.
- If a company suggests that you do not contact any of the three major national credit reporting companies directly.
- If a company tells you they can remove most or all of the negative information on your credit report, even if the information is correct.
- If a company recommends you invent a “new” credit identity by applying for an Employer Identification Number rather than using your social security number.
- If a company advises you to dispute all the information on your credit report, regardless of its accuracy.