What Every Home Buyer Should Know About Their Credit!

Your credit score is extremely important in the home buying process. It plays a huge role in how lenders view you as a borrower. Your score helps lenders determine how much of a risk you are, the lower the score the more of a risk they feel you will be to default on the loan. It also determines the interest rate (cost to borrow) and the type of loan you will be able to qualify for. Borrowers with a credit score of 700 and over are typically offered more financing options and better interest rates, and the No Money Down options. However, don't be discouraged if your scores are lower, there's a mortgage product for nearly everyone.

Know Your Credit Report
The first thing you should do when preparing to buy a home is perform a “Self Credit Check”. Order your credit report from all three agencies Equifax, Experian, TransUnion and review them thoroughly for errors. If there are errors contact the credit reporting agency(s) and request that the errors be removed. If you have negative items that are correct prepare a letter of explanation for those items to be attached to your file. Lenders are currently looking for a minimum credit score of 620. However, there has been talk of the minimum going up to 640. Avoid making significant credit purchases during this time, such as a car as this will surely lower your score.

How do Lenders View Your Report?
Lenders will pull credit reports and scores from all three major credit reporting agencies. They'll probably use the middle score to work your loan application. Ask your lender to explain which credit scores will be used and how they affect your loan application. Below are the aspects of your credit report that lenders scrutinize in the order of importance.

1. Your Payment History
2. Amounts You Owe
3. Length of Your Credit History
4. Types of Credit Used
5. New Credit

Negative Items on the Report
Bankruptcies remain on your credit report for ten years, while other types of entries are generally reported for seven years. If an account that was previously past due has been brought current, and has been either paid off or kept current for at least a year, the creditor might agree to an early deletion of the past due references. Write a letter to your creditor and request that the negative entries be removed. They'll often comply if they see you are up to date and handling your account in a positive way.

A Student loan default may not always be permanent. Talk with your lender to find out what you can do to bring your student loan out of default. Often, you will have to make several months of timely payments before your student loan will be considered current.

Quick Fixes
The fastest ways to raise your credit score are to pay down or off your current debt, and have negative entries and errors removed from your credit reports. If your attempts to correct an entry are unsuccessful, you can ask the reporting agency to insert a 100-character explanation next to it that explains your side of the story.

How to Improve Your Credit Score

Improve your payment history by paying on time and paying down your debt.
Maintain low credit balances.
Limit the number of inquiries made to your credit report over a short period of time.
Remove errors from your report.
Maintain a good mixture of credit cards, installment loans and fixed payments.

If you what to know more about how to manage your credit visit us at www.mifirstmichiganhome.com.