Do you plan to purchase a home or refinance an existing mortgage in the near future? If so, there are several credit repair tactics you should utilize to optimize your credit score at this important time.
The Revolving Balance Secret
The FICO credit scoring model puts significant emphasis on the relationship between your revolving account balances and your account limits. Do not underestimate the importance of this issue. Try to get your balances below 20 percent of the account limit at least 60 days prior to your mortgage application and keep them there until after you close on your new home loan. For example, if you have a credit card with a $1,000 limit you should reduce you balance below $200.
Pay Off Store Cards
The FICO scoring model carries a bias against store cards and consumer debt (like furniture store loans) and should be avoided during your credit repair effort. This is absolutely essential prior to an important loan application like a mortgage. If you have this type of debt try to pay it off or reduce it as much as possible.
No New Accounts for Now
Avoid opening new accounts for the moment. The inquiry will hurt you, albeit slightly, and any new account regardless of the balance will depress your credit score for the first couple of months that it reports. You may need to open new accounts as part of your long term credit re-building plan, but avoid doing this for the 4 months or 5 months prior to applying for a mortgage.
Try an Authorized User Account
If you have a friendly relative who has excellent credit you should consider asking them to add you to one or two of their credit cards as an authorized card member. They can simply call the card issuer and ask them to add you “in case of an emergency”. It is very important that the card has a perfect payment history and a low balance relative to the card limit. This is not a long term credit building solution, but it can be a great credit repair strategy prior to applying for a mortgage.
Try Using a Rapid Rescore
If you are not able to reduce your revolving balances 60 days prior to your mortgage application, don’t worry. Mortgage originators are able to force a credit rescore in a matter of a few days using a process called a “Rapid Rescore”. You will need to pay down your balances and ask the card issuer for a letter documenting your new balance.
Ask Us for Help
You are not alone. If you will be applying for a mortgage and want some help we will be happy to review your credit report and provide you with a comprehensive pre-mortgage credit repair game plan. Just give a call!