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 Typically,
a person with a bad credit score is in this position because of
employment complications, unplanned health complications or they
lack structure in their life.
Let's take a look at some examples that can
help to quickly improve less-than-perfect credit scores for a potential
homebuyer.
Spread Debt Among Several Credit Cards
Borrower 1 has a credit score of 664. They have a concentration
of credit card debt on one card; let's say $17,000 on a card with
a $20,000 limit. At the same time, they have four or five additional
credit cards, all with a zero balance. If the borrower distributes
the debt over the cards that are available to work with it changes
the ratio of debt to available credit. This can cause their credit
score to pierce through that magical threshold on the credit
score chart, and put them in the 680-699 category of having
good credit.
The Influence of Each Credit Score Factor
on Your Credit Score
Borrower 2 has a "credit high" (the maximum debt allowance
on all cards, combined) of $20,000. They have one card that is used
for business purposes that is pushing the limit. By getting two
new cards, each with a $5,000 limit, and spreading the debt out
over the cards they'll create a 30% margin of available credit on
all the cards. This will affect the factor of credit history, but
this specific factor only affects the overall score by 15%. The
big difference, once again, is the resulting impact on the credit
balance factor, which has a 30% influence on the overall score and
can cause the overall calculation to pierce through the next level
on the credit score chart.
Keep Credit Cards Where You Have a Long Credit
History
Do not close existing credit card accounts, even if they are at
a zero balance. Some people think they are doing themselves a favor
by having fewer cards, and they lose out on the credit history factor.
Even if you do not have a good rate on an old credit card, you are
rewarded for having the long-term credit history, and from time
to time you should make a small purchase to keep the account in
an active status.
What to Do Next
These are just a few examples of what you can do to improve your
credit score when you consider buying a home. If you are disappointed
by the fact that you cannot get the A-Paper loan up front, your
mortgage lender can monitor rates and your specific loan scenario
on an ongoing basis and advise you when you will have a chance to
turn this situation around. The new mortgage debt will temporarily
drop your score, but once the first payment registers as "paid,"
your score will begin to go up again and eventually present the
opportunity to refinance at a lower rate.
This chart illustrates that, all other factors
being equal, the higher your credit score the lower the interest
rate.
[Good
Credit Translates into Lower Interest] [Learn
About Credit Remediation]
[Learn the Five Factors
of Credit Scoring] [The Truth About
Home Appraisals]
[Interest Rates] [Mortgage
Rates] [Learn the Five
Factors of Credit Scoring]
[Return to Articles page]
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Mortgage Master Service Corporation
24909 104th Ave. S.E., Suite 100,
Kent, WA 98030
Phone: 253-859-5300 Toll Free: 800-583-7200
Fax: 206-382-9612 (Seattle line)
Email:
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