Many first time home buyers have questions about their credit. They are not sure what condition their credit is in or if they have an adequate score to qualify for a home loan. Conflicting tips from family, friends and media regarding credit and home buying just adds to their confusion.
It seems that the number one thing is to get help from a credit expert before going to a lender. When a lender pulls an individual’s credit score it’s called a “hard inquiry” and will result in a reduction of the persons credit score. But a good credit expert will show you how to acquire your own credit report without lowering the score. This allows potential home buyers to see what changes they need to make, if any, to prepare for a home loan.
Many people try to fix their own credit or improve their score based on things they have heard others say about their credit. But it’s best to beware. Some common attempts first time home buyers make can hurt their credit far more than they realize.
We asked Shelly Mull Co-owner of Credit Expert LLC about some of the common things she sees people doing that they think will help their credit but actually ends up hurting it.
“I think the answer to this question is based on myths that consumers have heard from other people. For example, paying off a car loan early, this will not hurt their credit scores, but it will stop helping their credit scores. Another mistake that people often make is buying a high dollar item on a credit card thinking that making the monthly payments on time will look good and help their credit. Although good payment history is a major contributor to the credit score, credit cards with high balances can decrease the credit score significantly. Another mistake often made is closing a credit card no longer being used that has been open for several years, has a good payment history with no balance. And finally, paying old collections accounts because their lender told them to do so. This can actually drop the credit score. So when it comes to a home buyer and old collections, I have a strategy to paying these.”
With all the so called free credit report services out there one would think this would be the best place to start but it is one more area to be careful. Since it’s hard for some people to know what they are looking at when they look at a credit report. A potential home buyer may see a score on their credit report but not realize that the lender will be looking at a different score or using a different scoring model to arrive at their score. Working with a credit care professional before going to a lender can allow you to get a different view of your credit history. Credit experts view your credit through the lens of how it can be improved. They are looking for things like what can be removed or errors that they can address. They are also taking the Fair Credit Reporting Act laws into account to determine what changes can be made. Whereas most lenders are only comparing an applicant’s current credit profile to their own set of requirements to qualify for a loan.
Shelly told us “A common variable that can keep the credit score suppressed are past negative accounts that remain on the credit report. Negative accounts can stay on the credit report for 7 years and a Chapter 7 Bankruptcy can remain 10 years. After taking the FCRA laws into consideration, we will determine whether or not negative reporting accounts qualify for possible removal before 7 years. “
“I highly suggest that they contact a credit professional first. Consumers can check their own credit, however, what I find is that most consumers don’t understand how to interpret their credit report. In regards to waiting to see if they are qualified by a lender, again this could be a wasted credit pull and a loss of credit score points if they don’t qualify. Plus, most lenders are not trained to interpret the credit report the same way that I’ve been trained to interpret them.”
Fico scores range from about 300 to 850. Anything above 740 is generally considered to be excellent and will allow an applicant to access the best interest rates. But many people don’t realize that credit scores can change in as little as a couple of days. One thing that can cause a score to drop quickly is having too high of a balance on credit cards. Typically it’s best to keep credit card balances less than 30% (preferably a zero balance). Credit scores can start to decline when the balance reaches 30% of the credit limit and even more significantly when it surpasses 50%.
You can contact Shelly and her team at Credit Expert LLC by calling (605) 271-8871 or by visiting www.creditexpertllc.com