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Understanding Your Credit Score & Repairing It

posted by Stephen Katz @ 12:42 PM
Monday, April 22, 2013

Credit repair is a subject consumers often face with fear and apprehension, and for good reason. With the exception of recognizing that the high score wins, the average home buyer knows very little about the credit scoring process. Sub-prime borrowers who are eager to move into A-Paper territory often find themselves at a loss when trying to find ways to improve their credit history. The good news is there are ways to improve less-than-perfect credit scores and secure a loan for your dream home.

The first step in the process is to get yourself a current copy of your credit report. Congress recently amended the Fair Credit Reporting Act so that consumers may now obtain one free credit report annually. There are three major credit bureaus: Experian, Equifax, and Transunion. Since information can vary across bureaus, you’ll want to request a free report from each of the three companies. (Go to www.annualcreditreport.com)

It’s also important to know just what a good credit score is. Most A-Paper scores generally begin at approximately 680, although this number may vary slightly from one lender to another. Don’t  worry 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 thousands of dollars over time as a result of a slight improvement to the interest rate of your loan.

While credit repair is imperative for some, it’s not the only way to increase your credit score. Even if you have exceptional credit, you can enhance your score through these steps:

1. Spread out 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 three 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 impact 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 don’t change overnight. Improving them requires time and diligent effort on your part, so it’s a good idea to get the ball rolling 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 credit 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 wealth of helpful literature.

Addressing credit issues can be uncomfortable to say the least. But by taking these steps now, you’ll be that much closer to obtaining the home of your dreams.

Additional Resources:

To order your free credit report, go to:
www.annualcreditreport.com

To read the Fair Credit Reporting Act, go to:
www.ftc.gov/os/statutes/frca.htm

For the Federal Trade Commission’s information on consumer credit, go to:
www.ftc.gov/bcp/conline/edcams/credit/index.html

Stephen Katz

(770) 309-0939 (direct) or (866) 742-8400 -- For the past 18 years, Stephen Katz has built a successful business almost entirely on referrals. As your mortgage consultant throughout the home loan process, Stephen will explain the pros and cons of all available mortgage programs and help you choose the financing option that is best suited to your needs. Throughout the loan process, he will keep you informed and will respond quickly to your requests with answers and solutions. Consistently a top producer, Stephen is a Mortgage Bankers Association "Diamond" Award winner, a Georgia Mortgage "Top Gun" and has closed almost half a billion dollars in loans. Put his knowledge and experience to work for you!

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