Very frequently, we get borrowers who have gone through a divorce and due to lack of awareness of the items still on their credit report, are unable to qualify for the refinance or purchase mortgage they were hoping to obtain. You can still get a mortgage after divorce. Here are some tips to make sure this isolated event doesn’t affect your credit score, causing you to miss out.
Continue reading “Credit Qualifying for a Mortgage after Divorce: 3 Tips”
In “Securing a Home Loan with Bad Credit – Part I” we explored mitigating factors borrowers should consider highlighting when it comes to securing a home loan even when you have bad credit. In addition to highlighting the financial assets you do have, your job security and proving your self-discipline as a saver rather than a spender, there are four other factors you should also highlight.
Continue reading “Securing a Home Loan with Bad Credit – Part II”
When it comes to securing a home loan today one of the biggest misconceptions is that you need to have an excellent credit rating, a large down payment and low debt-to-income ratio with steady significant income. But the truth is home ownership can happen even if you have bad credit due to a foreclosure or bankruptcy or if you have previously been turned down for a loan. Here are some things to keep in mind.
Continue reading “Securing a Home Loan with Bad Credit – Part I”
In “Climbing Your Way out of Debt Part I,” we looked at the cost of paying down debt by focusing on credit cards with the highest balance before focusing on lower debt balances and loans. This time we examine how much money it will cost over the long term if you pay down credit cards charging the highest interest first. We’ll also examine the costs of emotion when it comes to borrowing money from family members. Continue reading “Climbing Out of Debt – Part 2”
Like many Americans, you have a few credit cards and do your best to manage your money responsibly but it seems every month you come up a few hundred dollars short. Trouble is your annual raise hasn’t kept pace with the rising costs of gas, groceries and other necessities let alone discretionary or luxury items like movie tickets, your fitness club membership or trips to the spa. You know if you don’t rein in your spending, you’re debt will grow and climbing your way out of debt will be even more difficult than it is right now. Nobody wants, or likes, to be in debt especially in today’s tough economy. While climbing your way out of debt may seem like achieving the impossible, there are several ways to do it. Continue reading “Climbing Out of Debt – Part 1”
Of all of the mortgage products on the market, today we’ll talk about a Home Equity Line of Credit or HELOC – what is, how it works, benefits vs. drawbacks and if it would be right for you.
What is a HELOC?
A HELOC is a revolving line of credit that your home secures. Think of it a cross between a credit card and mortgage, only with a lower interest rate because your home secures the underlying debt. An additional benefit is since the debt is secured by your home, the interest is tax deductible. Continue reading “When is a HELOC Right for You?”
Many people ask when looking into refinancing their mortgage ask why their credit is considered good, but not excellent. It is a common misconception that simply because you pay your bills on time every month that your credit is viewed as excellent.
There are other important factors involved in credit score ratings derived by credit reporting agencies. For instance, the 3 credit bureau agencies, Trans Union, Equifax and Experian look at how many credit cards you currently have open, how long they have been open, and how much is currently owed with each creditor associated with the credit limit available. These factors can make a big difference when looking to get a refinance approved and the program qualified for. A consolidation home loan refinance is a productive way to pay off credit card debt in full.
Also, it often increases credit scores from good to excellent in a quick time period, since credit cards that were once listed as owed with high balances are reported as paid in full through the debt consolidation refinance program.
If you’re interested in learning more about repairing and maintaining a good credit score, particularly if you need to improve your own credit score, then read on. Perhaps, as a potential first-time homeowner, you’re in the market for a mortgage—or maybe you need your mortgage refinanced; either way, good credit is important!
Fixing and repairing your credit score is more than simply paying off debt regularly and in a timely manner, however. Yet it seems to be commonplace for consumers to be ignorant of what affects their credit score and what they can do to repair it and maintain a higher score.
But as already mentioned, there’s a lot more involved with what goes into a credit score. Here are five other, perhaps lesser-known ways you can fix and then improve your credit score. Continue reading “Repairing Your Credit Score: Other Options”
It’s a temptation many of us have when we’re looking to borrow money. Should you cancel your credit card account as a way to increase your credit score? Would closing a credit card account impact your FICO score? While situations vary, the answers to these questions may surprise you. With banks and credit card companies charging more fees than ever before consumers have to be on top of their game. Reading the mail and the fine print on bank and credit card statements could be the difference between paying more in interest and securing an attractive mortgage rate when it comes to refinancing your home.
Continue reading “Should You Cancel Credit Card Accounts When Refinancing?”
A family’s most valuable asset is their home. Many homeowners use a Home Equity Loans or a Home Equity Line of Credit (HELOC) to finance big ticket items like a child’s college education, home improvements and even medical bills. If you are considering a HELOC, you’ll want to take advantage of the best credit terms without subjecting yourself to any undue financial risks since inability to repay the borrowed amount plus interest could cost you your home. Here are some things to consider.
It’s important to understand the difference between a home equity loan and a Home Equity Line of Credit. With a home equity loan a lender agrees to loan a maximum amount for an agreed upon time period (a term) with the borrower’s equity in his or her home as collateral. Equity is the amount of money you would receive after selling your home and paying off the mortgage. Home equity loans provide homeowners a one-time advance with specific monthly payments and a specified time frame for repayment. Home equity loans are a convenient way to borrow money because of flexible terms and competitive rates.
Continue reading “What You Should Know about a Home Equity Line of Credit (HELOC)”
Lenders are a lot more cautious these days making buying your first home with bad credit seem like mission impossible. Trouble is circumstances have changed in the past few years with new loan limitations making it harder for people to get loan approval. While there are things you can do to maximize your chances of getting a loan, you should ask yourself some tough questions before investigating loan options.
First, consider if buying a home is good for your financial situation. Owning a home can be a lot of pressure with costs like homeowners insurance, repairs and property taxes many first time homebuyers have not had to pay before. Buying a home is one of the biggest lifetime investments many people will make. So you’ll have to do some soul searching to determine if owning a home is right for you.
Continue reading “Buying Your First Home with Bad Credit”
Let’s face it, bad credit happens to all of us at one time or another. Whether you’re unemployed, are disabled, sick and cannot work or the victim of credit card fraud or identity theft, falling victim to bad credit is easy. Here are some ways to avoid bad credit.
One of the best ways to avoid bad credit is to prevent it from happening in the first place. Creating a monthly budget before you start developing credit is the ideal way to keep your credit from getting out of hand. By making a list of your monthly income and monthly expenses, you’ll know your spending limitations. Just because a credit card allows you to go out and buy a bunch of stuff right away doesn’t mean that you should. It’s important to put a cap on your spending and stay well below your credit card limit. When you spend close to your credit card’s limit, your credit score goes down. Continue reading “Avoiding Bad Credit”
Quick facts video 2 – How do I get approved for a mortgage loan and improve my credit score?
How does my credit score impact my ability to qualify for a mortgage?
Let’s start with some basic information about credit.
There are three major credit bureaus: Equifax, Experian, and TransUnion.
These credit bureaus document payment histories for mortgages, auto loans, personal loans, credit cards, and other consumer debt. They also track and report derogatory information such as collections, foreclosures, judgments, charge offs, liens and bankruptcies. From this compilation of debt and payment history a credit score is computed.
My credit history (list below) rent, utilities, mastercard, visa, student loans,
OH NO!!! (list below) collections, foreclosures, judgments, bankruptcies…
Understanding credit scores
Credit scores range from 300 to 850 and have proven to be highly predictive of future repayment performance. Lenders therefore depend on an individual’s credit score to determine the risk of a borrower defaulting on their mortgage loan.
In the past a credit score of 580 was commonly used as the lowest score acceptable for obtaining a mortgage, however after the 2008 mortgage crisis this score is now considered too risky and a score of at least 640 is now typically required. Scores above 720 are considered “good” credit since they represent a low risk of default and therefore the best pricing is obtained by borrowers with the highest credit scores.
300 NO WAY!
580 Sorry – won’t work today
640 Acceptable – but by improving your score – you could save!
720 WAY TO GO! That’s going to save you some bucks!
850 Are you kidding? You go you little credit master!
How do I improve my credit score?
- Well – make payments on time! This may seem obvious to some, but making your payments consistently on-time over the years is the most critical component of your credit score.
- Check your credit on a regular basis and if there are any errors have them corrected immediately. Federal law entitles you to one free credit report annually which can be ordered at freecreditscore.com
- Keep your credit card balances to no more than 1/3 of the outstanding limit. Maxing out your available credit negatively impacts your credit score, even if you pay your bills on time.
- Don’t close that account! Keeping revolving accounts open especially over time improves your score.
In brief
1. Make Payments ON TIME!!
2. Check your credit at freecreditscore.com.
3. If your Visa limit is $15,000 don’t let your balance go above $5,000. Maxing out your cards damages your credit score!
4. Don’t close that account, even infrequently used accounts can improve your score.
Thanks for viewing our quick facts Credit video, I hope you found it helpful. If you have any questions please feel free to call us, our loan officers are friendly and ready to help!
Our loan officers are happy to answer any questions! So give us a call at 800-Homestead-8! (A text file of this video can be found on our website)
Of the potential borrowers that apply through either of our St. Louis or Kansas City mortgage offices that get turned down, the major reason is due to credit score (minimum required is 640) and the other is due to value.
While there is nothing we can do in the near term about value (from the housing crisis), here are some tips to improve your credit score that can help you in the next 30-180 days.
1. Pay your bills on time. Do not pay them late. Call this the sarcastic “OMG” part of our blog, but this makes up 35% of your credit score. It is important to note, that paying your bills late, also means:
- Paying late, but paying the late fee. You are still marked as paying late.
- No longer paying your car loan because you “gave it back” is still paying your bills late. “That’s not a repossession, we gave it back”, is not a viable argument.
- Allowing a debt to go to collection because you “disagreed” with the charge is still marked as paying late. You need to pay the debt to avoid the late mark then get your money back from the creditor.
2. Keep the Balances on Revolving Accounts Low.
For example, if you have a credit card with a $10,000 limit, and:
- You owe $10,000, that is bad. This means you are maxed out.
- You owe $100, that is Good! This means you have financial room.
- You haven’t used that credit card for a while, don’t close it out. The capacity to have access to credit helps your score.
3. Adding a Spouse as an Authorized User: This works for the situation where one spouse has a higher, qualifying score, but the other does not, but both borrowers income is needed to qualify for the loan.
If your spouse has available credit on their credit cards when you have little credit or little available, then ask to be added as an authorized user. This will help both borrower’s score if you need a few more points.
4. Adding a Secured Credit Card: I’ve mentioned before that credit card utilization accounts for 30% of your score, so if you’re having trouble getting a credit card, then apply for a secured credit card. We’ve had success referring borrowers to Orchard Bank, www.orchardbank.com.
5. Use Department Store Credit Cards as a Last Resort: While they can help, department store credit cards usually keep a low credit limit, consequently, are easy to max out, and can’t be used at a wide variety of stores.
By using a couple of these tips, hopefully that may result in an increase in score just enough to qualify or keep the rate you qualify for as low as possible.
Should I cut my credit cards up, so I Never use them Again?
Effective credit card utilization makes up 30% of your score so Listen UP! We often hear our customers say, “I’m closing this credit card and cutting them up” believing this will help their credit. However, I’m here to tell you that it helps in some cases, but hurts in others. Here are some helpful tips.
If You Don’t use it, Don’t Lose it.
One of the criteria we are scored on by the credit repositories is length of credit history. So don’t close that credit card even if you haven’t used it for a long time. Closing out old credit cards shortens that history, and consequently makes your credit viewed as riskier than borrowers with longer histories.
If there’s a balance, don’t close it.
This is the proverbial frustrated couple that says, “I’m closing out those credit cards and cutting them up”. Closing a credit card with a balance is like a double whammy. When you close a credit card with a balance, your total available credit and credit limit report as $0, but now has a balance. So the credit card that had available credit on it now looks like a maxed out credit card, which is very bad.
If your credit card is your only one, Don’t close it
Since part of your credit score (10%) is based on the different types of credit you have, keeping a credit card in the mix will add points to your credit score. Leave your credit card open to show that you have experience with this type of revolving account. Frequently, if we are trying to get a customer to qualify for a mortgage, and they score just short of the 640 minimum score, we often direct them to a bank that offers a secured(one that requires a deposit) credit card to raise their score to qualify.
So after all that, when should I close one?
Close credit cards if you have enough other revolving accounts with low balances and/or the terms or conditions are such that the drawbacks or costs outweigh the benefits of having them. In this market, a couple of points to your score means a lot in terms of qualifying for a mortgage or getting the best interest rate possible.
So to wrap it all up, in rare cases, cutting up your credit cards and never using them again helps in some cases, however, in more cases that not, its best just to have a little bit of discipline, organization and good old common sense.