Feb 06, 2012
Contact Info:
SureFast Mortgage
Chris A Woods
Processing Manager
Phone: 602-734-0202
Fax: 602-734-0203
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TIPS FOR BOOSTING YOUR CREDIT SCORE


If you're thinking about buying a house, your credit score is a very important number. The interest rate you'll pay for the money you borrow will be determined, in large part, by this three-digit number that's generated from the information in your credit report.

Most lenders have carved-in-stone rules about handing out the best terms, and those rules almost always place a major emphasis on your credit score. If their best rates are offered to borrowers with a score of 700 or higher and yours is a 698, those two points could cost you thousands of dollars. According to Fair Isaac Corp, who created the FICO score (the most commonly used credit score), the interest rate difference between those two scores is one-half percentage point.

If you're thinking about buying a house, your credit score is a very important number.


Example: On a $165,000 30-year fixed rate mortgage, that half point could cost you more than $19,000 in interest charges, assuming 6 percent is the lowest rate available. Fall below a 675 and the rate goes up another 1.2 percent.


Keep in mind that these are averages. Most lenders today practice tiered pricing, with interest rates rising as scores go down. Each lender chooses its own "break points" between tiers. Lender A may bump up the interest rate if a score falls below 700, while Lender B doesn't charge higher rates until the score is 690 or below. So if you stick with one lender, and that lender's break point is 700, raising your score from 698 to 701 can be vital.


This underscores the importance of not only doing all you can to improve your score, but shopping thoroughly when looking for a mortgage. From the perspective of a mortgage broker, who can choose among a sea of many lenders, there are no sharp break points. Consumers should do what a good broker does -- look for a lender that offers the best rate for a specific score.


You can take steps to improve your credit score. The number of variables that play into an individual score make it impossible to say that one particular action will increase a given score by a certain number of points. But there are some good guidelines. The way a consumer can maintain a great score is:

  • pay your bills on time,
  • keep account balances low, and
  • take out new credit only when you need it.


    • People who do that faithfully have very high scores. It usually means you're being conservative and cautious about credit. It's not a toy and it shouldn't be a hobby.



No New AccountsWhile you are in the process of applying for a mortgage, do no apply for ANY new accounts. Wait until after closing your mortgage to buy that new car or furniture. Be careful of department store credit card offers. Even though they may offer you a 10% discount if you apply for a card at the time of purchase this will reduce your credit FICO score and can jeopardize your new mortgage rate or even the mortgage.


Speedy upgrade
What if you're house hunting and you just need a few extra points to bump you over the line to the great rates?

  • Start by pulling your credit report to determine your credit score. If your are above 720, you’re golden. Improving your score from a 720 to a 740 won’t get you better terms.
  • What you're looking for on your report are factors that could be affecting your score. Look for errors in the report, such as accounts that aren't yours, late payments that were actually paid on time, debts you paid off that are shown as outstanding, or old debts that shouldn't be reported any longer (negatives are supposed to be deleted after seven years, with the exception of bankruptcies, which can stay for as long as 10 years).
  • After repairing errors, the fastest route to a better score is paying down balances on credit cards. There's really no set rule, but, over 60 days it's possible to increase your score 20 points by paying down your credit lines.


Had a few late payments in your past?
If you find yourself in some financial difficulties, you can protect your score by making sure your payments don't go 60 days past due. Some lenders may or may not report 30 days past due, but they all report 60 days past due.


Even if you've paid your bills late in the past, you can improve your credit score by paying every bill on time from now on. Forget about grace periods. If you want to have a really good record with the credit agencies, pay your debt before it's due and keep your balances low.


Closing out unused accounts -- A big no-no
One thing you shouldn't do if you're just trying to boost your score is close unused accounts.
If someone tells you to close unused accounts to improve your score, they're pulling your leg. It won't help you and it can hurt you.


Closing unused accounts without paying down your debt changes your utilization ratio, which is the amount of your total debt divided by your total available credit. You appear closer to maxing out your accounts. That's why your score can drop. It doesn't mean people shouldn't close them, but don't close them to improve your score.


If you do cut up cards, though, leave the oldest one open. The length of your credit history is another factor in your score. If you close the account of the credit card you got when you were a freshman in college and leave open the ones you just got within the last couple years, it makes you look like a much newer borrower.


Don’t pay it off yet
If you have a balance on an old collection, do not pay it off before consulting your mortgage broker. Sometimes people think they are “cleaning up” their credit by paying off a collection right before or during the loan process. This may actually decrease your credit score. Why? By paying off the debt you are actually bringing that particular account up to current status and it now appears to be a “recent collection”.



Working with credit card balances
Another strategy for bringing up your score: Transfer balances from a card that's close to being maxed out to other cards to even out your usage. Or just spread out your charges between a few cards.


Try to get the usage on all of them at 20 to 30 percent instead of a bunch at zero and one at 80 percent. You're not spending less; you're just shifting it around to different cards. If you keep your balances under 70% you will never appear to be “maxed out”.


If you're really into finessing the system, check your credit report to see what day of the month your creditors send updates on payments to the credit bureaus. They're rarely on the same cycle as your payment due date. That's why you can payoff your card every month and your credit report will show you carrying a balance. Then, make your payments several days before the reporting date.


All of these strategies generally take at least 30 days because lenders don't report payments more than once a month.


Rapid rescoring
If you're in the process of qualifying for a mortgage and need a score boost in a hurry, you can speed the process along with rapid rescoring. If you've got legitimate negative information on your credit report, such as late payments or accounts in collections, you're out of luck. But the process of rapid rescoring can help increase your score within a few days by correcting errors or paying off account balances.


You can't do this one yourself; you'll need a lender who is a customer of a rapid rescoring service. Generally, the service will run roughly $50 for every account on your credit report that needs to be addressed, but it could save you thousands on your loan.


The bottom line, the experts say, is that you're not powerless when it comes to your credit score. There are a lot of things you can do to improve your score. You need to understand what your credit is like now and what's influencing your score today. Then you can take an objective look at the different options available.


BEWARE of Credit Repair Ads: You are protected by the law and you have the right to dispute any erroneous items reported on your credit report. You can do this by contacting the three credit bureaus directly, without the expense of a Credit Repair Kit.

 
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