Credit Scores and Home Buying

Right now mortgage interest rates are the lowest they have ever been, making home ownership much less expensive than renting an equivalent house. I just locked into a 3.75% 30 year fixed mortgage interest rate today.

One problem that many potential home buyers have is that they can’t qualify for a home loan because their credit score isn’t high enough, or they don’t have credit established.

The good news is that mortgage interest rates will probably remain low for at least another year. The other good news is that credit scores can be improved, you just have to know what to do.

At our office meeting today we were visited by Credit Aid of Cache Valley. They specialize in helping people improve their credit scores so they can qualify for things like home loans, car loans, or even satellite TV. They have an online presence where they can utilize their services to help people improve their credit scores, as well as a physical storefront right here in Logan.

Some of the things they do include:

  • Help them get their free credit reports. Also available at AnnualCreditReport.com
  • Help people dispute credit issues
  • Help people establish credit, they work with credit unions and such that have very affordable ways to get credit established

Understanding Your Credit Score

To improve your credit, the first thing you need to do is understand how your Credit Score is calculated.

35% of your credit score is Payment History. Companies offering financing want to make sure you have a history of making your payments. If companies don’t report payments you made, or don’t report them properly your credit score could be adversely affected.

Missed payments will stay on your credit score for 7 to 10 years.

30% – Debt to Limit Ratios – Financial companies don’t want you to have a high level of debt, or more debt than you can handle. Don’t have a credit card maxed out. Raise your limits, or even better pay down your debt so that no more than 30% of your cards limit is used. 10% or less is best. If you raise your limit, don’t use it. Have some discipline. This same principle applies with home equity lines of credit and other revolving credit lines.

With credit cards you can call and ask to have interest rates lowered and credit limits changed.

Empty credit cards that are never used also aren’t good. Try to use each credit card or line of credit once a quarter. This shows the credit bureaus that you know how manage your money.

15% Age of Credit lines. The older the better. This shows the credit bureaus that you have been responsible over the years. Don’t cancel an old credit card.

10% – Types of Credit. Credit bureaus like to see a little bit of everything. They want to see revolving debt, instalment debt, mortgage debt, unsecured loans, as well as secured loans for a really high credit score. Paying for everything with cash isn’t necessarily good when you’re trying to get I high credit rating.

Car loans and Home loans actually pull a different score. Car loans will pull and ‘Advantage Score’ whereas home loans will pull the ‘True Fico Score’

10% – Credit Inquiries – The credit bureaus don’t like to see that people are seeking credit regularly. These queries only count when you you personally apply for credit. If shopping, and comparing loans do them all at the same time, that way they will only act as one inquiry rather than multiple queries. Credit inquiries last for 2 years on your credit report.

Building Credit

If you don’t have any credit you need to borrow money in some way or form to establish credit. The tricky thing is that its hard to borrow when you don’t already have credit.

Local banks offer a ‘secured’ credit card limit that establishes credit. People pay for the security by depositing a certain amount of money, then the bank issues a credit card. These banks will immediately report the repayment to the credit bureaus so that the person can establish some credit services. America First Credit Union, Wells Fargo, and USU Charter Credit Union all offer these services. These are a great way to establish some credit at very limited cost. There is still interest charged, but it is usually lower than an unsecured credit card.

Credit Repair of Cache Valley offers solutions to help people improve their credit scores. They will write letters to the credit bureaus for you to dispute any falsely reported debts. Every envelope they send is hand written. They will also provide education for you that will help you to raise your credit scores.

Most people see improvements within 60 days. Substantial improvement can be seen at four months.

If you are someone who wants to buy, but doesn’t have a strong credit score, Credit Repair of Cache Valley may be able to help you fulfill your dreams.

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