When someone gets into credit trouble, it’s usually because of an event they had no control over such as an illness or death in the family. A person could work hard for years to build good credit and still have a one or two problems tarnish their record. The good news is that you can take steps to repair and enhance your credit rating.
All you need to do is set aside some time and effort to repair your credit. Consider spending six months to a year repairing your credit before you apply for a mortgage. You can fully repair damaged credit within 24 months, but may see positive results a month after you begin to take action. Following are some steps you can take to get your credit back in good standing.
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If you haven’t already, get a free copy of your credit report from TransUnion, Experian and Equifax. Most lenders will use information from all three of these credit reports to assess your credit. There are many places you can go to request a free copy of your credit report. You can get a copy every 12 months or after you have been denied qualification for anything on your credit report.
It’s a wise move to pay off any delinquent accounts you are holding. This includes collections, unpaid taxes, etc. Doing this will improve your credit under FICO’s new scoring system. Mortgage lenders are not yet using the new scoring model, but they will want to see that you make good on your financial responsibilities. You can work with creditors to help remove negative information from your credit report while you pay off your debt.
You should go over your credit report with a fine toothed comb. Scour the report for mistakes or erroneous information. Almost everyone can find some type of error on their credit report. It doesn’t matter if the error is significant or not such as a typo or outdated information. If you find any mistake, you need to dispute them with the credit bureau and document your claims if possible. Correct information that reflects poorly on your credit standing will stay on your credit report for seven years, and bankruptcy can stay on for ten. Lenders are looking for good credit history, primarily in the past 24 months. The older the blemishes on your credit report, the better off you are.
The lower your debt-to-income-ratio, the more secure the lender will feel about giving you a loan. If your DTI is high for your income level, the lender may not have confidence that you will be able to afford a home loan. The best ways to lower your debt-to-income ratio is to lower expenses and increase your income.
Stay current on all your bills. Lenders want to see that you are honoring all your financial obligations and are current on all your expenses. Try and use your credit cards often and pay them back to show that you can stay current on your expenses.
Do not open or close any new accounts within six months of applying for the loan. Wait until the loan closes to open new accounts as this kind of activity looks suspicious to the lender.
Rapid rescoring, not to be confused with credit repair, is a method utilized by mortgage brokers and lenders to help consumers improve their credit. Rapid rescoring updates your credit report quickly to increase your score by a few points by finding legitimate errors and adding good credit information to the report. This can get borrowers lower interest rates, saving hundreds or even thousands of dollars.