Credit Repair
If your credit score is lower than 620, it can have a negative impact on qualifying for a mortgage loan with a desirable interest rate. The most important action you can take before applying for a new loan is to improve your credit. The difference in just a few points can be the distinction between a fixed or variable loan, and a competitive versus inflated interest rate.
If you have a bad credit score, there are three steps to you should take to repair your credit:
Get Started
Review your Credit Report
To start, you’ll need to order and review a copy of your credit report. Requesting your credit report is considered a “soft” request and will not affect your credit score. You can obtain one free copy of your credit report every twelve months from AnnualCreditReport.com. Once you have a copy of your credit report, review it for discrepancies and verify there are no outstanding errors or issues. Then look at your areas for improvement.
Start Repairing your Credit
Your credit score is determined by data that companies provide to a credit bureau. This data includes late or non-payment, the total current amount of debt, your credit length history, if you have any bad credit (for example, writing a bad check), and any recent history of applying for credit.
To improve your credit score, first look at your total debt and identify any immediate risks to your credit. Start by paying off any items that are currently in collection, or past due.
Next, look at your total monthly income and how that compares to your monthly expenses. A lender will be concerned if your total debt to income ratio is higher than 43%, so your goal is to show a debt to income ratio that’s lower than this.
Finally, make sure that you don’t incur any new late payments while you’re trying to improve your credit score. Set yourself up to pay all bills on or ahead of time. Don’t make any big purchases on your credit card unless you know you can pay off the total balance before it’s due.
Don’t Hurt your Credit
While you are attempting to improve and rebuild your credit score, it’s important to understand what can hurt your credit. During this time, don’t apply for any additional loans (for example, a car or boat loan) and do not open any new credit cards. Both actions will result in a lender placing a “hard” request for your credit scores. This type of request will affect your score and cause it to go down slightly. Opening a new credit card account or submitting a new car loan application can impact up to 10% of your total credit score.