Are you interested in buying a home? If so, the first item on your agenda is to be sure you have an acceptable credit score. What is a credit score? There are three repositories in the USA that rate your credit in the form of a credit score. They are Equifax, Experian and Trans Union. How do you find out your credit score also known as your FICO score? The best source is your selected mortgage lender or a website known as Myfreecreditscore.com.
Once you have determined your FICO score. It is important you know that the mortgage lender will require a mid FICO score of 640. A mid score is determined by not the highest or the lowest but the middle score rated by the only three repositories in the United States (Equifax, Experian and Trans Union). The score used by your mortgage lender is the middle score.
Now you have taken that step of determining your credit score, what is next? The secondary mortgage market has become more aggressive than the Federal Housing Administration (FHA). FHA only requires a mid FICO score of 580, however, that is not available in the secondary mortgage market. We now have a new parameter of an increased FICO score of 640. This occurred in early October, 2010.
So what is your plan of action? If your score is under 640 what are your action items to improve the score? Let’s take a look at these opportunities:
- Reduce your high credit limit to the outstanding balance. If you keep your high credit limit equal to or less than 50% of the amount owed on your credit card, this will significantly increase your credit score. For example, if your high credit is $1000, limit your borrowing to $500.
- Avoid new credit. Most department stores offer you significant savings on your first purchase with the request of a new credit card. Say NO! This will lower your FICO score if you open more credit cards.
- Always pay your bills on time. Past due payments will lower your FICO score. If you have missed a payment, focus on getting it current and keeping it up to date.
- Avoid using your credit cards for Christmas, if you are planning on purchasing a home in early 2011 keep your credit balances low.
- Limit the number of creditors to inquire about your credit. If you are buying a home, car or any significant item, pick your lender before allowing anyone to inquire about your credit.
- Lastly, be mindful of holiday spending. Pay cash and keep your credit cards at a low balance.
It would be beneficial to find a mortgage lender that has a passion to accomplish your goal. Ask how to create credit. Begin a path/plan to create a credit score to achieve your goals.
Van Purser and his wife Jeanne are a licensed Real Estate Brokers in Georgia. Since1984 they successfully purchased and renovated over 400 homes. Their expertise is in representing Buyers or Sellers as an advocate; which means always ensuring their best interest. Additionally, they represented hundreds of clients over the years as an Associate Broker with Metro Brokers, RE/Max and now with his own firm. He and his wife, Jeanne, have been married since 1977. Van or Jeanne can be reached at 770-623-3313, or by email at firstname.lastname@example.org or email@example.com.