Get Credit Ready in 5 Steps
What does it mean to be “credit ready”? As an Atlanta mortgage lender, I get asked that question quite a bit. It's important to make sure your credit is in good shape before you start your mortgage, or any loan, application. It will not only give you a better shot at being approved for one, but it will also get you better rates, which can save you thousands over the term of your mortgage. There are ways to get your credit ready that I can share with you today.
Review your Credit Score and Report
This is the first, and most important step towards getting your credit up to parr. If you don't know what your credit score is and what's on your report, how will you know what you can realistically afford or be qualified for?
There are a lot of places that you can get a free copy of your credit report from, including the 3 main credit bureaus; Trans Union, Experian, and Equifax. You can also get them from some online sites too. Just keep in mind that a lot of the credit scores from free sites don't use the same algorithms that mortgage lenders will use to determine your score. Either way, you will be getting a close estimate to work with.
The minimum credit score required to qualify for a mortgage is between 500 and 640 (depending on what lender you use). If your score falls just under that minimum, having a current copy of your credit report will come in handy.
Errors on your credit report do happen and if you come across any, you should dispute these and have them fixed as soon as you can. Even the smallest change can raise your credit score to where it needs to be.
You want to look for “derogatory” or negative marks, which include:
- Any late payments
- Accounts that are in default or collections
- Accounts that have been charged-off
- Any accounts settled for less than what was owed
- Any bankruptcy
If the negative mark is accurate, all you can really do is wait until it comes off of the report, which can be between 7 to 10 years. Errors do get made though and some common ones include:
- Negative marks that should have come off
- Accounts that you did not open
- Incorrect late payment or balance on an account
Paying Down Any Revolving Credit Accounts
Revolving credit, like credit cards, can have a big impact on your credit score. You can improve your credit score quicker by paying down these accounts. It all comes down to your utilization rate or the percentage of all of your credit that you are using. You want to keep this amount between 10% and 35% of the maximum available credit limit.
Make Payment Arrangements
If you have defaulted on payments, it's important to try to make a payment arrangement before your account goes into collections. Many companies will now help you to get am account paid down without going that route, which can have less of a negative impact on your credit, as long as you keep on top of those payments.
Pay On Time
Most importantly, make sure you are keeping up to date on all of your current bills, paying them on-time. Some of the other steps, such as correcting errors, will have an immediate effect on your credit score. However, in most cases, it can take time. So keep up on those payments and work on your finances. It's good advice to start working on your credit for several months to a year before thinking about going for a mortgage.
If you are thinking about taking out a mortgage, and want to know where your credit stands, give our Atlanta mortgage lender team a call today!