How to Clean Up Credit for Mortgage

March 19, 2015

How to Clean Up Credit for Mortgage

How to Clean Up Credit for Mortgage

Before you decide to buy a house, there are three important factors to consider increasing the chance that you will get approved when you take the course of getting a mortgage. Lenders usually look for the applicant’s financial stability such as a steady income, down payment and of course, a good, solid credit history.

Cleaning up your credit report and increasing your credit score will certainly improve your chances of getting approved for a mortgage. This is good news for anyone who plans to take out a mortgage and at the same time, already have a good credit score. It is only a matter of maintaining their credit score in order to avail of low interest rate.

But on the other hand, if your credit score is a little lower than what it should be here are some great tips on how to improve your credit score prior to applying for a mortgage.

Check credit reports

Order a copy of your credit report. There are three main credit reporting companies namely Equifax, Experian and TransUnion, which can provide you with a copy for free by request. US citizens are allowed to obtain a copy of their credit report at least once in every 12 months’ time. You can request for a copy online by going to their corresponding websites.

Check for inaccuracies

Errors are sometimes inevitable so once you have obtained a copy of your credit report make sure to investigate for any discrepancies. If there are any inaccuracies found, you can report and file a dispute from the credit bureau for free. Providing a proof of the error will make sure that it will get removed from your report within 30 days.

Manage current debts

Of course, current debts will always pull down your credit score. One great step to boost your credit score is to pay off delinquent accounts which includes late accounts, collections, charge-offs and judgments. Mortgage lenders need to be convinced that you will be able to make payments on time. It is advisable to pay off and remove delinquent accounts before applying for a mortgage.

Here are some other tips to manage current debts:

· Bury delinquencies with on-time payments – If you have any late payments or have just recently paid off a debt, best to wait at least six months before you apply for a mortgage. The older the delinquency is, the better your credit score/report looks. This does not only give you the possibility of getting approved for a loan, but it will also give you the opportunity to get a competitive interest rate for your mortgage.

· Reduce debt-to-income ratio – What is debt-to-income ratio? It is a measure to compare an individual’s debt payments over his or her overall income. It is expressed as a percentage and lenders would be able to determine a person’s ability to manage monthly payments and repay debts.

Seek professional help

Sometimes it is also best to seek help from trained professionals, especially if you are having a hard time managing your debts. You can ask advice from a credit counselor although there are still some companies, who would promise quick-fix for a high upfront fee. Make sure that you read contracts carefully before entering into an agreement or else you might end up in another trouble.

Avoid bankruptcy

Filing for bankruptcy should be the last option when there is nothing else left for recourse. Filing for one will leave a significant negative mark into your credit history and will stay in your credit report for 10 years. Exhaust all ways and efforts to repair credit report before going for this option. Otherwise, you will have to wait for years.

Don’t incur any new debt

This will make lenders suspicious of your financial stability and capability. To put it simply, when you are applying for a mortgage - why take out a new debt while you still have another waiting to get approved? It is advisable to stay away from any new debt which includes applying for a credit card as this will affect your credit score.

Credit reports may sound complicated but as long as any individual is equipped with the know-hows there should not be any issues.

Sources:

http://homeguides.sfgate.com/fix-bad-credit-buy-house-7467.html

http://credit.about.com/od/creditrepair/bb/creditmortgage.htm