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In July 2017, there was a major change in the credit scoring systems. They now put the major impact on the last 2 years of credit history instead of just the last 6 months. This has helped a lot of people that have had recent difficulties, but hurt those that have just begun to turn around their credit practices. It's very difficult (but possible) to change your score in the time between when most people decide to buy a home or refinance their mortgage and when they apply. But there are strategies you can do to get the most improvement possible. There are also strategies to live with to make sure when you apply for a loan your score is as high as possible. Most mortgage loans today are based on risk based pricing. That means the higher the credit score and the lower the loan to value, the better the interest rate. However, your interest rate will be based on the credit score submitted to the lender at the beginning of the processing. If we get some items corrected on the credit report during the processing and the score improves, it might help with approval but sometimes will not allow us to improve the interest rate on real estate loans. That's why it is so important to know about your credit ahead of applying for a mortgage so we can work together to improve it where necessary..
First of all, a lot more goes into a high credit score than just no late payments, but that of course, has a tremendous impact on the score. Here's a list of some things to be very careful about.
1. The length of time you have had the credit established. If you have several new accounts, it will lower your score. If you don't really need that department store credit card that is offered to you for an opening day discount, don't open that account! If you have old accounts that you are not using, DO NOT CLOSE THEM OUT. That will lower your score. As a matter of fact, check with those credit cards to see if they will close them without your request if you do not use them. Often it is better to make a small purchase on a card, then pay it in full, every 6 months so that the account shows positive activity and does not get closed out.
2. Ideally all of the balances on REVOLVING accounts should never go higher than 30% of your approved credit limit. If you can't keep them that low, then try to at least keep the balances under 50% of the limit. When you go over these amounts it can severely drop your credit scores. If you have several credit cards, try transferring balances to keep them all below these limits.
3. Make sure you are using at least 4 trade lines. A mortgage might be one and a car loan or lease another one. Then you will need two more trade lines. Believe it or not, lenders want to see that other people have given you credit and you are using it responsibly. If you do not have 4 trade lines, we can sometimes get rent and utility bills added on to the credit report to build it up.
4. If you have a dispute over a bill, send a letter in writing and fax a copy of the letter to all 3 credit bureaus. Until that dispute is settled between you they cannot put it on your credit report as anything negative. Do not allow even small medical bills to go into collection. If you get a letter from a collection agency, find out what it is about immediately and take care of within the specified time so it does not go on your credit report.
5. If you have to pay any bill late, make sure it is paid before the next bill is due. It will not show on your credit report unless it is 30 days late, but on day 31 it will show. Depending on what the bill is, this could drop your score up to 100 points and make you ineligible for mortgage financing at all.
6. If you have disputed the information reported on your credit report, make sure that the dispute is resolved and the notation of the dispute is removed from your credit report. You can no longer close a loan using a credit report that has a dispute reported on it and it can take time to have the dispute removed even if the problem has been resolved.
Make sure that the information each of the three credit reporting bureaus has on you is consistent and up to date. Order a copy of your credit report about once a year, and dispute any inaccuracies.
You can go to www.creditkarma.com or several other online websites to see your credit report and request any updates or corrections to your record. There is no charge for this and you will be notified when the updates are made.
Note: Theoretically, if a series of credit reports is requested on your behalf during a limited amount of time, your score goes down until time passes without any inquiries. Changes in the law though have made "consumer-originating" credit report requests not count so much. Also, a series of requests in relation to getting a mortgage or car loan is not treated the same as a number of credit card requests in a limited time. This is because the credit bureaus, and lenders, realize that people request their own credit reports to keep up with what's on them, and smart consumers shop around for the best mortgage and car loans.
Unsolicited credit card solicitations in the mail don't count against your credit report, so don't worry.