A credit report is one of the initial
items a lender reviews to pre-qualify a potential buyer for a
mortgage. Credit scores are a very significant part of the home
buying process today, but are not solely the determining factor.
Today, we take into account all activity reflected on the report
including late payments, judgments, tax liens, collections and
charge-offs. There have been times when a borrower has a credit
score which meets the lending guidelines, but because of other
activity reflected in their credit profile they are not able to
qualify for a mortgage.
Tips on improving credit scores:
- Pay bills on time ~ Delinquencies that have occurred in the
last two years carry more weight than older items.
- Keep outstanding balances low ~ Make an effort to keep balances
on revolving lines of credit (credit cards) at or below 30% of the
credit limit at least 2-3 months prior to pre-qualifying for a home
loan.
- Don't close accounts ~ If paying off a credit card, don't close
it especially if the account has been open for a long period of
time. Seasoned accounts help to keep credit scores up.
- Keep credit inquiries to a minimum ~ Credit inquiries within a
12 month time frame will impact your overall credit score.
- Apply for a secured credit card ~ Many banks will issue a
credit card if secured by a savings account. After a year of good
payment history they will generally release the secured
requirement.
A couple other items to keep in
mind:
Disputed Accounts becoming an issue~
- Fannie Mae's automated underwriting system, DU, now requires
"disputed" verbiage be removed from the credit report for the loan
to be eligible for delivery to Fannie Mae. Many, many people have
disputed items on their credit reports! In the past we could
provide a letter explaining the disputed item, but today this will
not suffice in most cases.
- Identity Theft increases by more than 7% during tax season
(March thru June)
- Requesting the credit bureaus initiate a Security Freeze is a
great preventative measure to avoid ID Theft. A Security Freeze
will not allow anyone, out side of current creditors, pull credit
prior to the consumer's approval. If they allow credit to be pulled
they can un-freeze the bureaus for the time required to pull credit
and then re-freeze when it's complete.
- Did you know, Cherry Creek Mortgage provides a free 1 year ID
Theft Protection service for every one of our borrowers in
Arizona.
Free copies of credit reports can be
obtained at the following website: www.annualcreditreport.com
The credit of many Arizonan has
suffered as a result of the economic turmoil the Arizona market has
experienced over the last few years. If you have prospective buyers
in a tough credit situation, feel free to share this information
with them. Educating our next wave of buyers is going to be the key
in getting them on the path to homeownership! Feel free to contact
me anytime with questions you may have.
Wishing you a fantastic weekend!
Kelly