Get Your Credit Scores Move-In Ready

Buying a home is a big step. And for most of us, the amount of our monthly mortgage payments is a major factor in determining how much home we can afford to buy. If your credit scores aren’t “move-in ready,” taking the time to get them in better shape will help you get a lower interest rate – and afford you more home. Is it worth it to put in the effort to raise your scores? When you consider that buying a home is often the biggest investment we make in life, yes!

Your scores have the power to influence where you live.

Your credit scores determine the interest rate you get from lenders. In turn, that interest rate determines your monthly payment amount and how much you can spend on a home. Higher scores qualify you for lower rates, meaning you can buy more home or afford to live in a more desirable location without raising your monthly payments. Can your credit scores really make that big a difference? Yes.

The numbers do matter.

Let’s say you can afford a mortgage payment of $1,300 a month. A credit score of 639 triggers an interest rate of about 5.46 percent. At that rate on a 30-year mortgage loan, you can afford to purchase a $230,000 home. A credit score of 680 lowers your interest rate to around 4.27 percent. That means on a 30-year mortgage loan, you can afford to finance $265,000 for the same monthly payment. We’re talking $35,000 more in purchasing power toward your new home.

Use this guide to help get your scores in shape to negotiate!

Check your credit scores from TransUnion®, Equifax® and Experian®.
• You don’t have just one credit score. You have different scores that are constantly changing – and you won’t know which scoring model a lender will use to evaluate your creditworthiness.
• Recheck your scores periodically throughout the credit prep process to track your progress.

Compare your credit reports from all three bureaus for errors or outdated information that lower your scores.
• One in five people have an error on their credit reports that can damage their credit scores.
• Late payments, bankruptcies and other negative information should drop off your reports in seven to 10 years.

File a dispute to correct inaccuracies that may be lowering your scores.
• Twenty percent of consumers who disputed errors on their credit reports saw their scores increase.
• The credit bureaus must respond to a dispute within 30 to 45 days — but don’t jump the gun. Wait until the dispute has been thoroughly investigated by the bureaus and resolved before you apply for a mortgage.
• Just one disputed account that is still under investigation can delay (or kill) your loan approval.
• Monitor your reports to be sure disputed items have been addressed – and no new errors or issues have popped up.

Be sure you have enough active credit accounts (or tradelines) before you apply. 
• It’s best to have a mix of tradelines that includes revolving credit (credit cards, gas or retail cards) and installment credit (auto or student loans, etc.).
• Conventional mortgage lenders typically require you to have at least three or four tradelines that have been active and in good standing for 12 to 24 months.
• FHA lenders are more flexible and will usually accept two tradelines. The FHA may also consider your payment history for rent, utilities, phone, car insurance, etc.

Reduce your debt at least 30 days before applying to look better to lenders.
• Your debt-to-income ratio is a major consideration in assessing your risk level.
• Pay your credit card balances down to at most 20 percent of your available card limit.
• Hide your plastic to avoid temptation! Do not add to your existing card balances.

Don’t close your old credit cards, even if you never use them.
• Closing old cards will not raise your credit scores – and in fact, it may lower them.
• Not only can it shorten the length of your credit history, it may diminish your mix of credit types, or tradelines.

Don’t apply for any new credit until you have the keys firmly in hand!
• Even one hard inquiry on your credit reports can knock a few points off your credit scores – so wait to open a Home Depot or Lowe’s retail card until after your mortgage loan closes.
• The amount of available credit you use directly affects your chances for loan approval. The lower your balances, the higher your scores and the less risky you are to lenders.

When it comes to home buying, good credit scores can open a lot of doors. Making the effort to get your scores move-in ready is the key to getting the most home for your hard-earned bucks.

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