Smooth sailing. Wouldn’t you like to describe your mortgage application experience this way? You can – and this is true even if you encounter the “dreaded” credit score surprise, says Vice President of Loan Origination for Allen Tate Mortgage, Lisa Green. That’s right: You don’t have to fret over a credit score that’s not what you expected.
In fact, Green continues, “You may discover that your homebuying credit score is higher than you thought it was.” Free credit score reports are offered today by many credit card companies and credit services. “But these companies use a different credit model than mortgagers do,” she explains. “Their model is designed for personal or car loans, or credit card applications, which are smaller commitments than a home mortgage.” If you’ve tracked your credit score through one of these companies, your homebuying credit score may be higher, but Green cautions, it may also be lower than these free-access credit scores.
Why It Matters
The value of a good credit score extends well beyond the simple question of qualifying for a mortgage. It also affects the interest rate you’ll be offered, the points you may have to pay, or your mortgage insurance rate. Over the life of a home loan, Green illustrates, a borrower with a 620 credit score may pay thousands of dollars more than a borrower with a 740 credit score.
For this reason, Allen Tate Mortgage President Chris Cope advises, “Don’t make assumptions about your credit or credit score. An Allen Tate Mortgage professional has the experience to help you properly assess your credit situation. Please let us help!”
If your homebuying credit score is lower than you anticipated, the good news is that you can take responsive actions that help to diminish – or remove – each negative factor. As a first step, Green suggests that you obtain your entire credit report from annualcreditreport.com. Getting your report from this website once a year costs nothing, plus it doesn’t hurt your credit score.
Cope suggests that you scan the report with the help of an experienced mortgage professional. “There can be lots of nuances in a credit report,” he says. “An experienced person can help point those things out and advise you about the actions you can take.
What You Can Do
Here are some credit score surprises that you might encounter, and what you can do about them.
Errors. It may be distressing to learn that an estimated 30 percent of all credit reports contain errors. Let this fact motivate you to obtain your free annual credit report. For each entry in the report, you’ll see contact information for the company involved. If you don’t recognize any loans or credit accounts that have been opened, call the company immediately, since this might indicate that your identity has been stolen.
Thankfully, most errors have nothing to do with identity theft. Sometimes a delinquent account that you previously resolved will still show up on the report. Other times, there may be an unresolved account that you forgot about, such as an unpaid collection account. In either case, the good news is that you now have a contact number and can begin the process of resolving the issue and improving your credit score. Your inquiry may be handled differently by each company, Green notes, so be prepared with some patient persistence.
High credit card balances. If you carry a balance on a credit card, the magic number to know is 30 percent. Balances higher than 30 percent hurt your credit score. On the other hand, Green says, “If you pay down your balance to 30 percent of the limit and try to keep it there, you will have a positive impact on your credit score.”
Late payments. No surprise – if you pay your credit cards late, you hurt your credit score. Sometimes surprising to folks is the fact that other late payments – of medical bills, for example – may also lower your score, especially once they are referred to a collection agency. Worse yet, the lower your score is, the greater the impact of additional late payments. But the bigger surprise about late payments may be how quickly you can erase their negative effect. “Make your payments current,” Green says, “and within two months, you’ll see a positive impact on your score.”
Getting Ready to Mortgage
In the weeks and months leading up to a home purchase, Cope recommends, be sure to avoid behaviors that could lead to new credit score surprises. “Now is not the time to take out new loans or open new credit accounts to build your credit. And don’t start buying furniture for the new home before you’ve secured the mortgage.”
While Allen Tate Mortgage would love to have your business, we also encourage you to check with more than one mortgage lender as you prepare to buy your new home. We’re confident that our products and services will come out on top!