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Credit Repair – From C to A Paper
If you’ve ever applied for a home loan with less than stellar credit, you know how much extra you have to pay. Even though it can take some time, credit repair is definitely worth pursuing. Credit Scores When considering your application for a home loan, a financial institution looks at your credit and assigns it a score. In the industry, these scores are loosely referred to as a type of paper. The best scores equate to “A” paper, while lower scores are graded just like in school, to wit, “B”, “C”, “D” and “Oh, my god” paper. If you have “A” paper, you can expect to get the best deal, while lower grades are known as sub-prime borrowers.
Credit Repair Credit repair is important because even small movements in your credit score can move you from one score to the next. If you move from B paper to A paper, you will save thousands of dollars in lower interest rates. A credit score of roughly 680 is considered to be A paper. If you have a score of 670, credit repair can bump you to 685 and save tens of thousands of dollars. In short, you want to make the effort to repair your credit whenever possible.
Don’t just sit and suffer with sub-prime loans. To repair credit, there are simple and not so simple steps that can be taken. Let’s take a look at some. Credit Card Debt Ratios Believe it or not, you can improve your credit scores by simply moving credit card balances around. A credit card with no balance actually doesn’t help you much if you have another card that is maxed out. If you shift the debt evenly among all credit cards, you credit score should increase. This has to do with something called your ratio of debt to available credit. It is a loophole of sorts, so take advantage of it. Closing Accounts Don’t! Many people will close credit card or other borrowing accounts when they are done with them. This is a huge mistake.
First, it hurts you because you’ve reduced the available credit portion of your debt to available credit ratio. Second, you lose a record of your long-term credit payment history for the account. Lenders like to see these, so suck it up and keep the account open. Inquiries As strange as it sounds, inquiries on your credit report hurt you. Try to eliminate these by challenging them through the Fair Credit Reporting Act and limiting the credit applications you pursue. You can challenge inquiries by ordering copies of your credit reports and following the instructions on the report. Make sure to do this for all three credit reporting agencies – Equifax, Experian and Transunion. Check Your Report The big three credit agencies must report to Congress each year. Each year they report an astonishing number of problems with their systems. This can affect you since accounts will appear that are not yours.
If these accounts have problems, your credit score goes down. Make sure you check your report before applying for a loan. You want to deal with these issues before you are in escrow. Borrowing large sums of money for a home loan can be intimidating. Avoid acting like a dear in the headlights. Deal with your credit issues and save yourself thousands in payments.
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