Dealing with Credit Challenges
Unfortunately, a person with a bad credit score is often in this position because he or she lacks the discipline to pay bills on time. Of course, there are exceptions whereunforeseen circumstances come into play, such as health complications, or loss of employment.
There are a few things that may be able to bring your score up so that you can secure a better interest rate on your mortgage loan.
Example 1: Distribute debt from revolving credit. Our borrower, Mr. Jones, has a credit score of 664. He has five credit cards, but his Visa account is almost maxed out. His other four credit cards have relatively low balances. Mr.Jones moves part of the debt from the Visa account to the
other major credit card accounts, thus distributing the debt more evenly over the five cards. This changes the ratio of debt to available credit (which has a 30% impact on the overall credit score), and Mr. Jones successfully raises hiscredit score by 20 points with very little effort.
Example 2: Transfer outstanding balances to new accounts. Our borrower, Mr. Smith, has only two credit cards, but both are pushing the limit of available credit. Mr. Smith opens two new credit card accounts, each with a credit limit of $5,000. He transfers part of his existing balances to the new accounts. While he has acquired two new cards that have no established history, the greater
impact is the change in the ratio of debt to available credit. Ultimately, experts say that it is best to have three to five credit cards, and no more than that. You should keep your balances as low as possible. If you have a credit account with a zero balance, do not close the account.
Instead, make a small purchase so the card shows up as an active account on your credit report, and you will be awarded points for your long-term credit history.
These are just a few tips to consider as you seek to obtain mortgage financing. But you should always know that as your loan originator, my job is just beginning when you close yourloan with me.
As soon as you begin to make mortgage payments on time and in full, your credit standing will begin to improve. My team and I will continue to monitor rates on your behalf and alert you to the opportunity to refinance into a loan program with a lower interest rate as soon as possible. Our long-term goal is to help you build a strong financial future.
