5 Ways To Overcome Credit Issues to Get a Mortgage
Your credit score is an important part of your mortgage qualification – so what can you do if you have a less-than-perfect score, but you want to buy a home? If concerns about your credit score are keeping you out of the home ownership game, there are a few things you can do to boost your credit and improve your chances of getting home financing.
#1. Verify your credit history
A study from the Federal Trade Commission found that 1 in 5 consumers have an error on one of their credit reports. Don’t let incorrect information harm your score! You can request a free report from www.annualcreditreport.com since federal law requires the three main consumer credit bureaus (Experian, Equifax, and TransUnion) to give you a report every 12 months if you request it.
If you find incorrect information on your credit report, take steps to dispute it right away. Start by getting in touch with the credit reporting company – depending on the agency, you can either start a dispute online or send in a letter. Be as detailed as possible when you outline the incorrect information.
#2. Handle your late payments
If late payments are a consistent issue for you, start by setting up automatic payments for your accounts. Make sure you look at your pay day schedule and build your automatic payments around it – that way you will not overdraw any of your accounts. Next, tackle any outstanding bills or late payments. You can always call the creditor to see if late payment charges can be forgiven too.
#3. Don’t apply for new credit unless you absolutely must
Although it’s tempting to apply for new credit every time you get an offer from a retail store, it might not be the best thing for your credit. Applying for multiple new credit cards within a small amount of time could hurt your credit score.
#4. Resolve collection accounts
Try negotiating with the collector to see if they will remove the account from your report if you pay it off. It’s important to get their approval in writing if they agree to this course of action. Follow up to make sure the account is removed by checking your credit report after you’ve paid it. If the account is still on your report, give the credit bureau a copy of your written agreement with the collector and proof that you paid off the debt.
#5. Analyze your credit utilization ratio
Simply put, your credit utilization ratio is the amount of revolving credit you currently use divided by the total amount of revolving credit you have available. For example, if you have a total of $20,000 in credit available on two credit cards and a balance of $10,000 on one card, your credit utilization ratio is 50% because you’re using half of your total available credit. The common recommendation is to maintain a credit utilization ratio below 30%. Since your credit utilization ratio is a major factor in calculating your credit score, it’s important to monitor how you’re using your credit.
Get in touch with one of our loan experts today if you have questions about your mortgage options. Let’s start a conversation about what loan programs might be available and how we can help you reach your goals.
This does not constitute credit advice. Borrowers should consult their own credit advisers regarding credit services or credit repair.