Winter is the best time for potential home buyers to work on their credit to obtain the best terms and rate on a mortgage (though for optimum results, improving your credit should be throughout the year process).
Winter is a good time because home buying season starts to heat in the springtime. So winter is an excellent time to do some “touch-up” and perform necessary corrective actions to make the process as smoothly as possible. Please contact me directly to ascertain where you stand today with all three credit bureaus – TransUnion, Experian and Equifax. Here's a sample of what your credit report looks like.
Credit utilization is one thing that you can work on immediately. Most people tend to rake up their credit cards over the holidays. We recommend that the optimal utilization should be around 30%. For example, if you have a credit card with $1,000 credit line, pay it down to at least $300 balance and keep it at that level until you have received the key to your new house since lenders will re-run credit after 60 days.
Pay your bills on time. This one item will have the biggest impact on your score. Once reported, late payments will be shown as derogatory item such as late payment, collection, and be grouped with other derogatory items such as bankruptcy and tax lien.
I found an error on my credit report. How long will it take to correct and improve my score? It depends. For example, paying down your credit card will take one billing cycle to see its results. However, if you have a derogatory item such as late payment, collection, bankruptcy, judgement, or tax lien, that can stay on your credit report for 7 years. You can still be Pre-Approved but you will not obtain the best terms and conditions.
What are lenders looking for? We prefer if you have 3 scores from each credit bureau (Equifax, TransUnion, and Experian) with 3 revolving trade lines such as regular credit cards or departmental credit cards for at least 12 months with on-time payment history and with 30% credit utilization rate (see above). However, I can also help you in using other non-traditional accounts such as your cell phone bill, utility bill or rental payment history as non-traditional credit profile.
How much can I qualify for? Having a good credit (700 and above) is only a portion of what we will evaluate in determining your loan amount. Other factors are your ability to pay (Debt-To-Income – DTI ratio), down payment, and subject property(appraisal).
Equifax, an Atlanta based company announced on September 7, 2017 that there may have been a breach of their database sometime between mid-May and the end of July. This breach puts 143 MILLION consumers at risk. Here are some steps of what we can do to protect ourselves:
Just 33 percent of millennials own a credit card, according to a new survey by Bankrate. Many are happy to pay with cash or a debit card to avoid the spiral of carrying over a credit balance and getting hit with high interest rates. (I totally can understand that). But a good credit history can be essential when you apply for an apartment, a mortgage, an auto loan, or a job, or even to get a good deal on a cellphone. The better your credit history, the lower the interest rate on your future
loans. And it can be tough to get a credit card after shunning plastic for years.
Here’s how to start building a credit history, for the day you’ll need it.
Get on someone else’s card
A family member might agree to let you become an authorized user on her card. Basically, her credit history — which we’re assuming is good — is now yours. Please do not abuse your privilege and be a responsible authorized user.
Get a ‘starter’ credit card
For someone with no credit history, the Capital One Platinum credit card is an option. The card has no annual fee and no reward program, and with an APR of 24.9%, you’d definitely want to pay it off every month. While people with a short or blotchy credit history get cards with high interest rates, a 14 percent interest rate is average for those with good credit, and the rate could be 9 to 12 percent for someone with excellent credit. Use it and pay it off every month. Use the card responsibly, and over time your credit limit, which may start at $500, will be bumped up, maybe to $1,000 after half a year. Once you’ve had that card for six months, a lot more offers will come in that you might be pre-approved for, now that your credit profile has been built.
They’ll likely have a lower interest rate and a reward or cash-back program. Along with paying the card off every month, it’s important to keep your spending well below your credit limit. Your credit score could be dinged for using more than 30 percent or so of the available credit.
Apply for a secured card
To get a secured card, you put down a cash deposit as collateral; in many cases, that’s also your credit limit. As you promptly pay the balance in full over at least six months, you build a credit history. If you have a checking account with a big bank, that should be your first stop for a secured card. Be very wary of seeking a secured card from a company you’re not familiar with, because some companies that specialize in offering secured cards have “horrendous fees.”
Take out a credit-builder loan
If you don’t have a chunk of cash to use as collateral, a secured card may not be an option. With credit-builder loans, you’re basically borrowing from yourself to build a credit history. The loan goes straight into a savings account, and you make monthly payments until the amount of the loan is paid in full. Then you get your money back, minus a small amount of interest. Some credit unions offer this product to members, calling it a Savings Secure loan.
Some landlords and utilities report rent payments to the credit bureaus, but it’s hit or miss. If they want to buy a house down the road, it might help to show that record to the mortgage lender. It’s not on your credit history, but anything you can do to document that you are responsible with your debt payments helps.”
Build credit with microloans
Lenny is a mobile lending app that targets consumers between the ages of 22 and 35. A sort of microlender that reports your payments to two of the three major credit bureaus, Lenny can help you build your credit score and can be a cheaper way to get emergency funds than going to a payday lender or getting hit with multiple overdraft fees. To judge risk, the company looks at such things as your college, major, grade-point average, LinkedIn page, and many other data points.
For members, who pay $2 a month, Lenny can make loans from $100 to $10,000 in three minutes. If the loan is paid back within 30 days, there is no interest charge. The app has lots of prompts to alert you when you’re doing something that could hurt your credit score, such as getting too close to a payment date while having drawn down 30 percent or more of your credit line.
A standard dispute containing verbiage similar to the following:
update my account #XXXX to reflect, the actual credit limit, your reporting of
this account with my high credit can easily be perceived as fraud and an attempt
to diminish my credit rating. This improper reporting has caused me denial for
credit and has caused severe financial and emotional distress. I am sure that is
not your intention, and appreciate your expeditious response..
Please contact National Foundation for Consumer Credit or 1-800-388-2227 for information on debt management.
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