Understanding Your Credit Score

Since the end of the recession, higher credit scores are now required for the best rates. To ensure the best deal on your home loan, aim for a FICO score of 760-plus. Here are several tips on how to maximize your FiCO score:

1. Stay on top of your credit reports. You’re entitled to one free copy per year from each bureau. Get them at annualcreditreport.com, and look for misreported delinquencies, over-reported loan amounts, and underreported credit limits. Request corrections from the bureau in writing.

2. Pay bills within the grace period. Lenders report tardiness to the bureaus once you’re 30 days past due; if your score started at 780, it can go down to 680 after just one delinquency. So set up payment reminders or have payments automatically deducted from your bank account prior to the due date.

3. Focus on paying off credit cards vs. other debt. Whittling down revolving debt will do a lot more for your score than erasing installment loans. Paying off a $250,000 mortgage when your score is already high will boost it by only five or 10 points. But wiping away a few thousand bucks on credit cards can add 100 points.

4. Stay under the magic 10%. Just paying credit card balances off every cycle doesn’t mean you have a 0% utilization; issuers report the total amount you charge each month to the bureaus. That suggests you should use credit cards sparingly. Aim to spend no more than $2,000 on a $20,000 credit line; and do not make large purchases using credit before or during the loan process.

5. Have a favorite credit card. The FICO model penalizes you for having multiple balances, so limit the bulk of your spending to one card. That said, issuers are closing inactive lines, which can hurt your utilization ratio. So make small charges to your other cards every three months or so.

If we can assist you in finding a local lender, please don’t hesitate to Contact Ben Wolfe. Earlier in my real estate career, I was also a licensed mortgage agent therefore, I am much more familiar with the lending process than other real estate brokers.

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