Real Estate Column: Get Your Credit Ready


By Cheryl MacCluskey

Credit is everywhere! Credit scores have become part of our lives. Like it or not they seem to be here to stay. We need to care and protect them. We can’t seem to move without someone wanting to pull our credit report. Since your credit is defined by how you’ve paid (or not paid) your bills in the past, many businesses, landlords, mortgage lenders, utility providers, and even employers use your credit to predict your future financial responsibility. Anytime you need to borrow money, even services, your credit is called into question. This is why maintaining a healthy credit is so important for any future purchases especially a new home.

How much will you pay: The question all mortgage lenders ask is “is this client credit worthy, will this person default on their mortgage?” If you are not credit worthy a mortgage lender will consider it risky to give you a mortgage loan. Your credit can be the differentiating factor that determines whether you get approved for a mortgage because most borrowers would be hesitant to lend money to those with bad credit scores. Most banks require at least a 680 to get approved for a mortgage, FHA and CHFA will go lower. To be on the safe side a credit score above 720 will show you are creditworthy.

If you credit score falls below 640, it doesn’t mean you can’t get approved for a mortgage, but it does mean you’ll have to seek out alternative lenders. Which means you will probably end up paying more in interest too.

SIX TIPS TO HELP IMPROVE YOUR CREDIT

Balance your Credit: If you’re already in debt, increasing your credit limit might seem like a bad idea, but it can do the opposite and actually be a really smart move. When it comes to your credit score, a good rule of thumb is to keep your balance below 30% of your total credit available. If you only have one credit card that is almost maxed out, opening another credit card with higher limit and transferring 50% of the balance to the new card, this can help bring down your total balance on the maxed out card.

Pay Bills on Time: This is the easiest way to maintain good credit, but you would be surprised at how many people fail to pay their bills on time. If you sign up for e-billing but never check your email, see if your service provider offers phone or email notifications. If you maintain a balance in your checking account, setting up automatic bill will insure you will never miss a payment.

Paying in full is another way to improve your score. Clearing your debt is a great way to boost your score without having to deal with annoying interest payments.

Use your Credit Card More Frequently: If you have no credit, you have bad credit. Building your credit history by getting a credit card with a small limit. Then, make small purchases and pay them off right away. This will show lenders you can take on and pay back credit easily.

Make an Agreement with Collectors: If any of your bills have gone to collections, the damage unfortunately has already been done. This doesn’t mean you are destined to have bad credit. As you pay your bills, send a note to the collection agency or the company that sent it to collections and see if you can get them to remove the notation from your credit report or have it marked as paid as agreed.

Find and Dispute Errors: There are times that your bad credit rating is a result of a banking error or the credit card companies. Having a late payment can result in your score going down by 100 points. If your score is a mistake of either a bank or credit card company, notify them by a letter detailing the mistake and asking them to correct it. Notify the Credit Bureaus and open a dispute. Once a dispute is claimed it can take up to a month to be resolved.

Other monthly bills: It might be somewhat shocking to learn that credit is needed to establish utility service. This applies to most utility service, cable, telephone, water, and even your cell phone.

Summary: Your credit report and scores can affect your ability to get a loan, rent an apartment, or even qualify for a job. A credit report shows your bill payment history, current debt, and other financial info. Companies and lenders use your credit report to calculate your credit score, a number usually between 300 and 850.  If you have many late payments or collections it might be wise to put off applying for a mortgage until you have had time to clean up the late payments and collections. Take the time to get your report healthy and then apply for a mortgage.  It will be worth the trouble in the end with a lower interest rate!

Cheryl MacCluskey is a Senior Loan Officer at Fairfield County Bank with 25 years of Real Estate and Mortgage experience. She can be reached at 203-536-1297 or cheryl.maccluskey@fairfieldcountybank.com

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