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Understanding Credit Scores And Repairs
By: Dave Lewis
If you are applying for a mortgage, you’re going to have to deal
with credit scores. Here’s a primer on credit scores and methods
for improving them.
Credit Report
Step one in the process is making sure that you have a current
copy of your credit report. Congress recently amended the Fair
Credit Reporting Act so that consumers may now receive one free
credit report annually. There are three major credit bureaus:
Equifax, Experian, and Transunion. Since entries can vary across
bureaus, you’ll want to request a free report from each of the
three companies. (Go to www.annualcreditreport.com)
Credit Score
It's also imperative to know just what a good credit score is.
Most A-Paper scores typically begin around 680, although this
number may differ slightly among lenders. Don't despair if you
come up shy, there is always room for improvement. Increasing
your score just 5 points can save a significant amount of money.
For example, if your score is 698 and you increase it to 703,
then you could save yourself thousands of dollars over time as a
result of a slight improvement to your loan’s interest rate.
While credit repair is necessary for some, it is not the panacea
to increase your credit score. Even if you have stellar credit,
you can enhance your score through these steps:
1. Evenly distribute your credit card debt to change the ratio
of debt to available credit. Let's say you have a credit score
of 665. If you have debt on only one card, and four additional
credit cards with zero balances, evenly distributing the debt of
the first card could move you closer, and possibly into, that
ideal bracket.
2. Keep your existing accounts open and active. The average
consumer is usually anxious to close credit card accounts that
have zero balances, but doing this can cause them to lose the
benefits of a long-term credit history and increase their ratio
of debt-to-available credit. The bottom line is don't close
those old accounts!
3. Keep credit inquiries to a minimum. Each inquiry into your
credit history can influence your score anywhere from 2-50
points. When it comes to mortgage and auto loans, even though
you're only looking for one loan, multiple lenders may request
your credit report. To compensate for this, the score counts
multiple auto or mortgage inquiries in any 14-day period as just
one inquiry, so try and stay within that time frame.
Remember, credit scores do not instantly get better. Improving
them requires time and diligent effort on your part, so it's a
good idea to start at least three to six months prior to
submitting your application for home financing.
If credit repair is what you need, you can either begin the
process yourself or seek out a repair service. If you decide to
make your own improvements, visit as many websites as possible
to get information regarding credit laws and consumer rights.
Diligently search through them and educate yourself to ensure
that you don’t sustain any self-inflicted wounds. A good place
to start would be the Federal Trade Commission's website, which
contains a plethora of helpful literature.
If you’re facing severe or complicated credit issues, then
you’ll probably want to enlist the assistance of a professional
credit repair company. Before you do, be sure to familiarize
yourself with the FTC's regulations on credit repair. With over
1100 credit repair companies to choose from, it's important to
be certain you are dealing with a reputable firm. Examine the
FTC's information on fraudulent practices to avoid falling
victim to credit repair scams.
Albeit, addressing credit issues can be uncomfortable. By taking
these steps now, however, you’ll be that much closer to
obtaining the home of your dreams.
About the author: Dan Lewis is a mortgage broker with http://www.gwhomeloans.com
- San Diego mortgage brokers providing home loans and
refinances.
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