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Improving Credit: More How and Why

Whether purchasing or refinancing your home, the first step should always be to see your credit reports. Improving your credit is always possible-no matter what your current credit score may be. I recently wrote about 7 ways to improve your credit reports, and this installment further expands upon the information contained in that article. Since most mortgage programs are keyed to credit scores, it's important for you to know how good (or bad) your credit reports appear to any source of mortgage financing you may employ.

The three agencies (and their corresponding toll-free numbers) that collect credit data and generate credit reports on individuals are: Experian (888-397-3742), Trans Union (800- 888-4213), and Equifax (800-685-1111). Follow the prompts to get copies of your credit reports from all three. Remember: for married couples, there are SIX (6) reports in total. Be sure to get them all.

Each of the credit reports you receive will be a "user-friendly" version so you can understand how to read and interpret them. They'll also send a dispute form so you can challenge any incorrect information. It can take as long as 60 to 90 days before any changes will be reflected on your credit reports. Acting NOW can put you into a house by the Summer!

Of critical importance is the credit score generated by these reports. The significance of this score essentially gives the Lender a statistical framework from which to judge your overall credit worthiness on a numerical scale. This number takes into account your past payment performance, how much credit you use, the age of your accounts and the type of credit you are using. Scores range from the 400's to 800. The higher the score, the better you appear as a credit risk. Steps you can take to make positive changes in your score will have varying impact. Some strategies will have greater effect than others.

1. Keeping payments on time is weighted most heavily in your credit score. Payments reported as "late" (over 30 days, 60 days, 90 days, etc.) are most damaging. Any erroneous entries must be disputed using the above mentioned dispute forms to be changed. If a negative entry is accurate, it can only improve by keeping all your payments on time. Of special interest to credit decision-makers: recent late payments on accounts can often be more damaging than a bankruptcy two years ago.

2. Credit cards with balances at or near their maximum limits also weigh heavily in your score. Keep your account balances at around thirty percent of the maximum available credit to optimize your credit score. Smaller balances on MORE cards is a better than having major balances on just a few cards. If possible, transfer part of the balances on your cards to other [existing] cards you have. Do not open new accounts for balance transfers. Though it may be attractive due to a good rate, this can hurt your score because NEW accounts lack history and are therefore scored lower. Users of new (low-interest) accounts tend to load up the account because of it's low rate. This often results in using the total amount available on the account-a bad decision when applying for mortgage financing. Making balance transfers to older accounts enhances your score. Switch any balances to the lower-rate cards AFTER you've gotten your mortgage!

When you're considering making balance transfers, call your credit card holder(s). It may be possible to negotiate a better rate and terms with them by saying you're considering transferring your balance to another company. They may reduce the rate on your card if they sense they're going to lose you as a paying customer. This will reduce your monthly payment while helping to enhance your credit score. It certainly can't hurt to try. As an alternative, request a credit-line increase. If granted, it will effectively reduce the percentage of the maximum available you have on the account, and raise your score.

3. Outstanding judgements, collections and charge-offs lower your credit score. If you're planning a home purchase, it's best to pay them off-especially if they are affordably small. If these amounts are larger ($1000 and up) you may be able to negotiate for a reduced payoff. Again, it won't hurt to ask. If you cannot afford to pay them off, don't despair. Mortgage programs are available that allow them to remain open and unpaid.

Credit improvement has become an art when it comes to your ability to qualify for any mortgage financing. Knowing the above strategies can help you save thousands of dollars on any mortgage you seek. From this starting place, your Mortgage Professional can help you determine the programs most suited to your particular situation and help you fully explore your options.

Mark Atkinson is a Mortgage Professional with A&M Mortgage Solutions, a resource for those buying, selling or refinancing real estate. He can be reached by phone at (860) 350-8400. E-mail at


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