The revamped regulations in the lending industry have made getting a mortgage more challenging than ever. The bright side of the new regulations is that it is much harder to qualify for something that you cannot really afford. The down side is that you have much stricter guidelines to follow in order to be approved for a mortgage. Credit scores, in particular, are much more important than they used to be.
For anyone that may have been thinking about buying, checking your credit report is the best place to start. Everyone is entitled to receive a copy of their credit report for free once each year from each of the three major credit bureaus. Whether or not you are looking to buy a home, keeping tabs on the activity recorded on your credit reports is important. Your credit score affects more than just your ability to qualify for a loan; negatively reported accounts on your credit report can keep you from renting a home, getting insurance, or even getting a job.
As complicated as a credit report might seem, raising the ever-important credit score is not all that difficult. Stay away from companies offering to fix your credit… for a fee. True help is available through local agencies and nonprofits, your bank, your lenders, even your church, but many people can do it all on their own.
Order copies of your credit reports and review them carefully. Any negative accounts (unpaid debts) on your credit report should be contacted promptly and balances negotiated to be paid, and marked as paid, on your credit report. Any items that you feel are in error or do not belong to you should be disputed through the credit bureaus. When the investigation is complete, the credit bureaus will provide updated copies of the credit reports for you. Review them again and repeat the process if necessary until you are certain that all of the information on your credit report is accurate.
A good credit score is more than just removing negative accounts from your report; you must show a history of responsible use to earn good credit: pay your debts, make payments on time, and avoid collecting new debts. For those without credit, this can start with opening a single credit card. One credit card, well managed, is more beneficial than multiple cards with outstanding payments. It takes time and consistent payment to build good credit, so don’t keep opening new cards. Each credit inquiry will actually lower your rating temporarily. Pay close attention to your credit limit. Contrary to appearances, the credit limit should never be the maximum debt you can carry. The limit of your debt should be well below the limit of your credit. For the credit cards to help improve your score, limit the balance you carry to 10% of your total credit limit.
With careful monitoring of your credit report and good credit practices, you can raise your credit score. Talk to your lender and start improving your credit today so that you, too, can jump into the buyer’s market.
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About David Goldstein — David Goldstein is an Owner and Founding Partner of Colibri Real Estate, LLC. which operates online education providers Colibri Real Estate, Insurance License Express and License Tutor. Follow him on Twitter.