Real Estate Beyond Four Walls

Before you even begin looking at a Maplewood home, you may want to take a look at your credit score first.  Your FICO score is a major factor in determining how much interest you have to pay on a mortgage loan.  The higher your score, the less you pay.  If your score is below 620, you may have a particularly difficult time obtaining a home loan.  First and foremost, pull a copy of your credit report from all three credit reporting agencies (Experian, Equifax and TransUnion).  You are legally entitled to one credit report per agency per year for free.  Go to AnnualCreditReport.com to obtain your free credit report.  This is the only site authorized by the Federal Trade Commission to provide you with a free report every year.  You may find a big discrepancy in your credit scores from agency to agency.  For example, Experian may show your FICO to be 685, Equifax says it's 705 and TransUnion has you at 640.  The difference in scores is accredited to the fact that not all loan companies report to each agency.  Each credit reporting agency uses the information they are given.  That's why you need to get a copy of your score from each of the three agencies. Once you receive your report, go through it to check for errors: credit cards you never had, loans that say you owe a different balance than you do, a debt that may show as a charge off (the company couldn't collect on the debt) instead of paid off (you completely paid it off), etc.  Any error you find can hurt your credit score.  When you find an error, write to the reporting agency directly explaining the mistake, provide proof of the mistake and request that they correct this error on your report.  Also, contact the company that reported the erroneous information to dispute it.  Make sure to request that they provide you with written documentation that this was indeed an error as well in case it does not get taken off your credit in a timely manner. Pay down your credit cards.  Part of your credit score is determined by your debt-to-credit ratio.  Financial experts recommend that you keep the balance of your cards below 30%.  For example, if you have a credit card with a $1500 limit, you need to keep your balance below $450.  Maxing out your credit cards, even if you pay your monthly payment on time all the time, will hurt your credit score.  If you have been a long-time customer in good standing, you may want to contact your credit card company to request an increase in your line of credit.  Don't use this extra credit, though.  This will lower your debt-to-credit ratio on that card, increasing your credit score. Never be late...ever!  Payments that are late even just a couple of times can have a negative impact on your credit score.  The other positive to paying on time is that you won't have to pay those nasty late fees.  Instead, that money can go towards paying down your balance/principal. Don't apply for new credit within three to six months before applying for a Maplewood home loan.  Anytime you apply for credit, whether it is a major credit card, department store credit, car loan or other, your credit score is reduced by 5-10 points.  This can quickly reduce your "good" credit down to "fair" or worse, increasing your interest rate and lowering your chances of being approved for your home loan.  The same rule applies after you have applied for your home loan.  Put a freeze on applying for any new credit until after close of escrow.  If your credit score changes while you are going through the home loan process, it can significantly hurt your chances of actually getting approved. This blog post is provided for information purposes only.  I am not a credit expert nor a certified financial adviser.  If you do have any questions about how you can get your credit score in order before you buy a Maplewood home, please contact your accountant or other financial adviser.  Let me know when you're interested in searching for your Maplewood dream home.  I'm always here to help. Francine Lichtman, Real Estate Beyond Four Walls, New Jersey Homes Originally posted on my Maplewood is Home real estate blog here: http://maplewoodishome.com/2012/01/credit-score-and-buying-a-home/.