real-estate-credit-score

How homebuyers make a mess of their credit scores and Chances of Buying a Home

When you are looking for a mortgage loan to purchase an apartment, the most important aspect to consider the credit rating of your. Credit score is used by lenders (aka FICO score) to determine whether they will provide you with money to purchase an apartment and at what rate.

“Lenders offer credit based on their belief that they can trust you to repay the amount they lent you,” says Stephen Rosen director of sales at mortgage firm Better. “If you’re worthy of the lender’s trust it is considered to be creditworthy or have ‘good credit. Building credit is similar to building credibility with lenders. .”

Credit scores can range between 300 and 850. The definition of good and bad credit is different between creditors, here’s an overview of the basics:

  • Excellent credit score: 750-850
  • Good credit score: 700-749
  • Fair credit score: 650-699
  • Poor credit score: 649 and lower

However, it’s very easy to make mistakes that can lower your credit score and reduce the chances of getting a loan for your home. Here are the five most damaging mistakes that homebuyers make. Plus, how to turn things around and restore your credit score the right track.

If you’ve ever made your payments is a major concern for lenders. In turn, your repayment history is a significant part of the credit score. Incomplete payments, late payments, as well as loan defaults such as tax liens can cause a significant impact on credit. And, even more so, if you haven’t made a payment to your credit card balances for a long time–say, six months or more, your creditor may “charge off” your account as non-collectible and then sell it to an agency for collection.

The most obvious solution will be paying off the debts punctually or to remember the monthly installment.

“Generally generally speaking, the most effective way to credit is to pay your balance in full,” says Ace Watanasuparp National director of strategic sales at Citizens Home Mortgage. “Set automated payments so that you don’t miss a payment and, if you have enough funds you can set up automatic payment a day or two prior to the due date. .”

If you don’t like auto-paying create reminders in your calendar for the due date of each bill to ensure that everything is paid in the right date, Rosen suggests.

  1. High credit balances

Your debt burden is 30 percent of the credit score. So, having high balances on credit cards will also impact your score.

Ideally, you would like your credit utilization, which is the amount of debt you carry as compared to your credit limit be minimal, ranging from 30% – 40 percent from your limit. For instance, if you are able to use a credit limit, using $2,000 per month instead of using the entire $5,000 can assist in building your credit score.

“The lesser your balances on credit the better you credit standing,” Rosen adds. He recommends creating alerts for your credit card to ensure you are in sync with the extent to which your credit card limit are being utilized.

  1. A short or sporadic credit history

The duration of credit histories accounts for 15 percent of the score. The longer your accounts are active the more favorable. This includes credit cards or student loans, auto rentals, or loans.

“Lenders will require the customer to have at least the period of 24 months credit history” Watanasuparp says.

If you have credit cards that’re still excellent, but you do not use them, don’t shut down those accounts. Closing credit cards with a balance due to payment could harm your credit score since it decreases the duration of your credit history.

“It’s more beneficial to keep the credit card open and make use of your credit card from time time, rather than close the credit line,” Rosen says.

  1. A limited mix of credit

Credit mix is the mix of loans that are in your credit file, including student loans, credit cards and auto loans. The ability to have a variety of credit is beneficial, since it shows you are able to manage paying off a variety of loans at once. A mixture of credit is a contributor up to 10 percent on your score.

“Ignoring credit mix can drag down your credit score,” Rosen says. However, “understanding and improving it could boost your credit .”

But don’t get any additional credit cards or get new loans in the hopes of having a combination of credit if you aren’t able to pay the bills, Watanasuparp warns. If you do, it can cause much more damage than benefit.

  1. Too much new credit

Credit cards that are new make up 10 percent of the score. What lenders do not want to see is that they have opened multiple credit card accounts or made numerous applications for credit in a short amount of time. They view this as a sign you are unable to manage credit. In addition the opening of new lines of credit reduces the average duration of the credit record which can affect your credit score.

It is possible to be overly credit-worthy in the event that you have difficulty making your monthly payment, and you have a large amount of debt, particularly new debt. Therefore, avoid opening new credit lines only if you are confident that you will be able to pay the bill every month.

How long will it take to fix the credit rating of yours?

If you’ve made a financial error similar to one of the ones previously mentioned, it’s an end in itself. You can begin today to rebuild your credit once more. It will require time, so be patient.

“Repairing the credit requires smaller tasks, which can range from a few days to several decades to finish” Rosen says.

A few of the things that remain in your credit file for many years are:

  • Bankruptcy: 7 up to 10 years
  • Foreclosure/mortgage default time: seven years
  • tax liens (unpaid tax on properties) Up as 10 years in the case of liens that are not paid
  • Accounts charged off 7 years
  • Judgments and lawsuits 7 years (even when a judgement has been complied with)

A few credit scores’ blemishes will not necessarily hinder you from getting the mortgage you want, however. Speak to your lender and prepare to describe what transpired in the past and the steps you’ve taken to fix the problem.