Cleaning Up Your Credit
If you have credit problems, make improvements before applying for a loan. Even if your history includes a bankruptcy or foreclosure, following these tips can polish up your record enough to help you qualify for a future loan:.
If you've made late payments in the past, take six months to a year and make very
payment on time before applying for a loan.
· Use cash whenever possible, and stop charging.
· Use secure savings to pay down high debts vs. saving for a down payment that may never happen.
· Lower the balances on all credit cards; as they're paid off, write to each company canceling your account until just one or two remain.
· Pay down installment loans such as car payments.
· Don't open any new credit accounts.
· If you've had a good credit history for seven years (the period considered in scoring), but it was damaged by extenuating circumstances, write a 100-word explanation to file with your loan application.
· For serious credit
problems, ask a credit counseling center about signing up for a home buyer's payoff program and apply for a loan only when you're nearing the end of the program.
Still turned down?
If your lender turns down your application because of poor credit, ask for precise reasons and for a copy of your Residential Mortgage Credit Report. If it contains errors, be sure the dates of facts in question are within the past seven years; anything older shouldn't be used to assess
your credit risk. Advise your lender of errors immediately, and contact the relevant agency or agencies below to request a new investigation of questionable areas. And be sure that credit accounts you've closed are noted as "closed by consumer." (Note: Closing an inactive account doesn't remove its history from your record.) Finally, ask your lender if you're a good candidate for "rapid rescoring"—a growing trend in which a local credit-reporting agency analyzes your
report for inaccuracies and gives specific advice, potentially raising your score in a matter of days.
If you're turned down for a conventional loan because of credit problems, you can probably still qualify for a loan with a lender that works with people who have a B or C credit rating or a subprime lender, but expect a substantially higher interest rate. But be extremely cautious with "special" loans offered to high-risk first-time buyers—they often demand impossibly high
interest rates or promise future refinances that never happen.
Even with a great credit history, remember to review your credit report annually or before making major purchases. Below are the three credit bureaus that provide credit scoring to lenders:
Experian: 888-397-3742 or www.experian.com
Equifax: 800-685-1111 or www.equifax.com
Trans Union: 800-916-8800 or www.transunion.com
