This is a guest post by Ed O'brien. It is about credit and repairing your credit. The start is more for my US readers, as in Australia our credit is done different (we don't have a number score) but the tips in this article can apply to everyone.
Want To Save Thousands on Your Mortgage? Take Steps to Repair Credit
A home is likely the biggest financial investment you will make in your lifetime. An affordable mortgage is certainly not difficult to find but it takes attention to credit on the buyer’s part. Even if you are ready with your down payment and have your next home picked out, it is dangerous to apply for a mortgage loan with a lender without first checking where you stand credit-wise.
Stricter Lending Requirements
Due to the housing market fiasco of the last few years, lenders have had to tighten their purse strings to prevent the excess of defaults they have experienced in the past. As a result, they have placed must stricter lending requirements on the potential borrower. One such change concerns the status of a borrower’s credit score. In the past, lenders were accepting of a credit score in the range of 700 and above. This range was considered to be a good score and an indicator that the borrower was not likely to default.
Fast-forward to the last year and lenders have changed their minds. They now want to see credit scores of 730 or higher before they will consider offering the best mortgage terms and interest rates. Certainly those with lower credit scores can still find lenders willing to approve a mortgage but the borrower will be required to pay much more over the life time of the loan in finance charges. Additionally, penalties and fees for a lower-score loan will likely be higher.
Saving Big-Time Cash
If you are looking to get an affordable home with reasonable mortgage payments, you are wise to check out your own credit score before letting the lender run a check. If you find you are not up to par with the 720-730 range, you should make the effort to repair your credit immediately. Otherwise, accepting loan terms based on a lower credit score will force you to pay thousands of dollars in interest charges, which may make your ‘dream home’ no longer affordable.
Time Heals Bad Credit
Don’t expect to start working on credit repair one week and apply for a loan the next. Credit repair does not work that way – despite what agencies are marketing to the public these days. There is no simple, overnight fix for bad credit. All consumers must put forth the time to repair low credit scores.
Start with ordering a copy of your consumer credit scores from the three credit reporting bureaus TransUnion, Experian, Equifax. Each score will cost a fee of around $15. Along with the score, order a copy of your credit reports from the bureaus and review them very carefully for any inaccurate information. Be sure to dispute all mistakes and errors with the credit reporting bureaus, which are required to investigate the information being reported by your creditors. This important first steps will take about two or three months before results will be reflected in your credit report.
The next steps will involve contacting your creditors to pay off or negotiate the pay off of the balance in full. The more debt you are able to effectively eliminate the better your credit score will appear to be. This may also help your mortgage process since your debt to income ratio will be much lower as you work to increase your credit score.
Only when you have thoroughly done the work to get your credit score as high as it can be within your current financial status should you apply for a mortgage loan preapproval. With an improved credit score and more time to stock money away for new home expense, the mortgage process should be rather smooth and the financial rewards you earn by saving thousands over the next 15 or 30 years will be well worth the work.
Ed O’Brien is a seasoned writer on personal finance, specializing in credit repair. You can find more of his articles located at CreditRepair.org.