Why are you looking at your credit report so early? Well, the truth of the matter is that you are looking to make sure that you don’t have any credit report surprises standing in your way of getting that mortgage approval when it is crunch time. Problems with your credit report can cause problems with your credit scores which together could either prevent or hinder your efforts in getting low VA rates, or FHA rates or Conventional rates for your mortgage.

Credit reports are not created equal and each credit bureau gets and reports slightly different versions of your credit. What this means is that you stand the chance of having differences between the three different versions of your report and it is in these differences where problems can lie.

Some problems to look for include: mistakes in your name spelling, former and current home addresses, former and current employers, account balances, actual accounts you had and currently have etc.

Slight variations in any of these pieces of information can lead to lower credit scores and credit report red flags. For example, let’s say that you are put on your mortgage application that you have been living in one apartment for the past 4 years, yet your credit report suggests that you had a former address that is different from a year ago. If this is the case and you don’t catch it first, you could be in for a long ride of scrutiny from the mortgage lender to ensure that you are who you say you are. Sorry, but there is a ton of identity theft and fraud out there that lenders are challenged to make sure that all the “i’s” are dotted and the “t’s” are crossed. If they see something questionable it is their job to seek the correct information.

Another example of what you need to pay close attention to is your account balances and account limits. If your accounts are paid in full but still show a balance you could have a lower credit score. Likewise, if you have accounts that show lower credit limits than you actually have you should get the correct limits reflected on your report as you could be showing a lower credit limit to balance ratio. The lower the ratio (more debt to lower limits) the lower your credit scores. While this might seem like a minor point, it could make a difference of 10-30 points which could move you up an approval tier which could result in lower interest rates and monthly payments.

The list of issues with credit reports goes on and on. The important thing to do is to get a copy of your report and review it, well in advance of starting home buying process. The same advice actually applies to you if you are considering a refinance and you haven’t checked your credit in awhile. Do yourself a favor and get your report early and save yourself some headaches.

So for the record, if you are in the process of buying a house, or even thinking about it, you need to be aware of several things that will likely hurt your scores and your chances of getting a mortgage approval even though logic would dictate otherwise…or you may be left with doing StorageMart reviews to see where you should store your stuff just a little while longer.

Here are 4 make sense well intentioned actions you could take that could hurt your chances of getting a mortgage in the short term.

Closing Old Credit Accounts – don’t do this just before starting a mortgage application or while you are buying a home. While it seems like closing a credit account would be a good thing, part of your score is based on the age of your open credit accounts. Open older accounts typically means higher scores.

Not Using An Old Account – You should use your open credit from time to time. Just use it for gas or a dinner every once in awhile and pay it off at the end of the month. Positive activity on your cards goes a long way to demonstrating that you can manage your credit and thus improving your credit scores.

Paying Off An Old Collection Account – This action is murky territory at best. The guideline here is that if the collection account is over 12 months old don’t touch it until you speak to your loan officer. You may not have to pay it off at all in order to qualify. You may have to pay it at closing – but paying it then won’t impact your credit scores in a way that can kill your deal. Recent activity on a delinquent account is a sure way to drop your scores.

Paying Off A New Collection Account – Again, paying collection accounts is tricky business as you may be able to just pay it off at closing versus ahead of time. However, you may be able to go directly to your creditor and pay them directly. If they accept payment make sure that you negotiate taking the negative remarks off your credit report. You may be able to get them to fix what was bad thus making your scores possibly go up. If it is a medical collection account – be sure to check with your loan officer because in many cases you may not have to address these accounts.

If you are looking to use a VA loan to purchase a home or to refinance your current mortgage and you are not sure what your credit looks like you should get in touch with a VA lender as soon as you can. As you apply for a VA mortgage, the lender will get your credit report and let know you if you have any credit issues to be concerned about. They may even give you a copy of your credit report – all you have to do is ask them. Some lenders will give it to you and some won’t.

No matter whether your scores are good now, or they are low and you need to get them up in order to qualify for a mortgage here are some suggestions to follow for raising and maintaining your scores.

• Pay any car loans, student loans, credit cards, mortgages, other bank loans, and in some cases even utility bills first and on time. These types of accounts report to the credit bureaus and they have little leniency when it comes to someone being 30 days past their due date.
• When it comes to your rent payment – make sure you are not more than 30 days late. Chances are when you apply for your mortgage one of the credit accounts you’ll have to provide documentation for will be your housing history. Late payments to your landlord could be a deal breaker, especially if it has been within the past 12 months. Other items such as your cell phone bill, insurance, etc. are not as critical as they typically don’t report to the credit bureause for late payments unless you let your account go into collections.
• On your credit card accounts you want to make sure that your balance stays at least under 50% of your account limit and it is best to keep your balance under 30% of the limit. This balance to limit ratio is very important to your credit scores. A quick way to improve your scores is to make a payment to one of your accounts that is over 30-50% of the limit to reduce the balance.
• Make sure that you get a copy of your credit report. You want to go through it very carefully looking for errors and charges/activity that you didn’t do. Many instances of identity theft are found by just looking for unauthorized activity on a credit report. You never know what has happened to your credit if you haven’t checked it in awhile. If you find errors and mistakes you’ll want to go through the process of fixing them. This usually takes some letters back and forth with the credit bureaus – always keep in mind that the burden of proof is on you to show the correct information. The FTC.gov has a lot of good information about fixing credit report errors.
• Now this might sound odd, but if you have any unpaid collection accounts – don’t pay them! That’s right, don’t pay them. If you do, you could actually cause your credit score to go down even more (at least in the short term) which could hurt your qualification for a mortgage. Get some advice from your loan officer about how to handle these accounts. Often, you can just pay them at your loan closing, or in some cases you won’t have to worry about them at all.
• In the case where you have had a Chapter 7 Bankruptcy, you will want to monitor your credit report to make sure all of your discharged creditors update their records on your credit report. You will have time to get any of these changes made as you will have to two years from your bankruptcy discharge date to get a VA loan.
• If you have a short sale you will have a two year wait and if you have a foreclosure you’ll have to wait at least 3 years to get a new VA loan.

With a foreclosure, short sale, or bankruptcy you will also need time for your credit scores to recover.

This is both a positive and a negative for some homeowners.  On the positive side, this means they are able to refinance their homes at a lower rate and take advantage of equity in their homes.  But on the negative side, this assumes that the borrowers who are purchasing new homes still have good credit, can make at least a 20% down payment on residences with value of no more than $417,000.

Two important keys to this type of program:

• Loan amount available up to the maximum JUMBO FHA limit in your area
• FHA financing is for Everyone and not limited to first time homebuyers

FHA loans are guaranteed by the government and offer more flexible guidelines than traditional mortgages.  Some of these features are:

·         Down payment of 3.5%

·         Allows for lower credit scores

·         Cash out refinance transactions up to 85% of loan to value

·         No minimum or maximum income limits

When considering to refinance or purchase, a new property, the consumer must be prepared to present a complete financial package to their lender.  By having all the financial information available, this will allow your loan expert to find the correct loan program to fit your financial requirements.

It is important for the consumer to present the following items which visiting with a lender:

• Complete copy of last 2 years personal tax returns for all borrowers
• Copy of most recent paystub for all borrowers
• Complete copy of last 2 months bank statement on all types of accounts

Some programs may not require this type of financial information.  However, the more information provided to the lender allows for a smoother the transaction for the consumer.  In addition, it allows the lender to have a frank discuss with the borrower on the types of programs that will meet their financial requirements.

When meeting with the lender, the consumer must be do the following:

• Always be truthful to the lender
• Have complete copies of last two (2) federal tax returns including all W-2’s on all borrowers
• Have copy of most recent paystub for all borrowers on the transaction
• Have a copy of last two (2) months bank statements on all accounts and any stock/investment accounts
• If refinancing, have a copy of most recent mortgage statement
• If refinancing, bring copies of original documents in regard to mortgage
• Prepare a list of all assets, including names of banks, average balances along with a list of all liabilities, i.e., auto loans, credit cards, 2^nd home mortgages.  Note the lender can receive this information via a copy of your credit report.  But having the information available at the meeting is important.

At this meeting, the lender will be able to approximate, what your debt to income ratio. The final ratio is determined by credit underwriting. 

By having this information available, the lender should be able to discuss with the consumer various types of loan programs, which will meet the consumer’s financial position.  If you are a new home buyer, it is important that you have money available for a down payment. 

Some consumers have been facing financial hardship such as the lost of a job, reduced salary, divorce, death or a medical emergency. During these time loans, bills and credit cards can quickly pile up and destroy the consumer’s ability to repay their financial obligations. Not only are these obligations weighting heavily on the consumer, the various credit card lenders are increasing the interest rates and fees on the consumer’s credit cards.

So what is the consumer to do about this situation?  Some of the solutions make sound simply, in a normal economic such as:

• Borrow only what you need
• Pay all bills promptly and more than the required monthly minimum payment
• Understand your credit report
• Recognize financial situations
• Understand the type of loan you are requesting, is it an open credit, revolving or installment loan.  Know the terms and repayment requirements.

One way to reorganize their financial situation is to:

• Call their mortgage lender to discuss a loan modification – This will achieve lower monthly payments
• Order a credit report – The consumer needs to know their credit score and identify any errors.
• If the consumer currently has a good credit score, call the credit card companies to obtain a lower interest rate 

A good credit rating is one of the keys to financial freedom in today’s economic climate.

The consumer knows that loans, bills, mortgages and credit card charges can increase very quickly, in particular the credit cards used for day to day expenses, it is a challenge to maintain the monthly payments.  So in order to safeguard the consumer’s reputation and credit score rating, they need to review and relearn ways to protect themselves.

Some of the things the consumer needs to revisit are the following key ideas:

• Am I borrowing wisely and paying back promptly?
• Have I identified, avoided and recovered from various financial pitfalls?
• Have a gotten a recent copy of my credit report and do I understand it?
• Does my family have a financial plan for the future

The key to being a good credit risk is based upon the consumer’s credit score.  This score is a numerical number assigned to the consumer based upon their credit history. This history is based upon number of opened and closed accounts, payment history, including late or missing payments and collection referral, original credit limit, current balances, etc. The higher your credit score is the better your ability to borrow at more favorable interest rates.  The lower the score the consumer is charged a higher interest rate or decline altogether.

Basically, the consumer needs to obtain a copy of their credit report from one of the following three credit bureaus: Equifax, Experian or TransUnion.  Once you have this report, the consumer needs to set down and review this report for accurate information. 

·         Try and manage their current debt themselves – in other words tighten their belt and spending habits.

·         Debt consolidation loan – this would combine all outstanding unsecured debt into a single payment loan. The problem is can the consumer qualify for a new loan with no job or financial hardship issue.

·         Refinance or Home Equity loan – This might work, if the consumer has enough equity in their home, however the repayment may be an issue.

·         Credit counseling service – This program acts like a debt consolidation loan. The consumer pays a third party company who in turns pays a small or set percent each month to the lenders until all the balances are pay off. In addition, there is credit counseling for the debtor and this will also have an affect on your credit score.

·         Bankruptcy – This is the most serious and the final step that a consumer should consider.  The consumer needs to discuss with an attorney all facets of bankruptcy since it will cover all debts, both secured and unsecured.

·         Debt settlement – This is a program by which a third party negotiates with the lender in order to reduce the outstanding balances on unsecured credit cards.

People are faced with every increasing pressure to get out of debt and is now more willing to consider a debt settlement program.  The average consumer wants to pay off their credit card obligations, but the lenders are not willing to work with the consumer.

Therefore, the consumer is let with no choice but to consider either bankruptcy or a debt settlement program.  Yes, there are other options available, a home equity loan or a debt consolidation loan from a lender.  However, because of consumer’s financial situation these options are usually not available to them. 

The debt settlement program is a better option than bankruptcy for most consumers.  If a consumer is considering bankruptcy they should consult an attorney before taking this step. Whereas a debt settlement program will allow a third party to negotiate on behalf of the consumer for a settlement of up to 50 percent off their current outstanding balances.

This is not a quick fix or easy step for the consumer. This program can take been 12 to 48 months depending on the consumer’s obligations. Basically, the program requires the consumer to place a set dollar amount aside each month into a “trust/escrow” account.  Once there is at least half of your lowest credit card balance, then the debt settlement expert will start to negotiate with your lender. The key to this program is that the lenders are more likely to accept some monies from the consumer than receiving nothing from the consumer if they file bankruptcy.  Under bankruptcy, normally the secured lenders receive their monies first and in most cases the unsecured lenders receive up to little or nothing.  By receiving nothing, the lenders have to write this off as a loss or bad debt on their financial statements.

So call today and learn more about Debt Settlement.