How can you improve your credit score?
In today's lending evironment (2008) your credit history is extremely important when it comes to qualifying for a home loan. Some programs require a particular score to qualify, period. Others are based on an automated system that looks at your score, but also looks at other things about your situation, like down payment, or equity in the property, or assets available after closing. But regardless, the higher the score, the more choices for financing you have.
In a perfect situation, you've planned ahead to buy your home and have been careful and conservative in your use of credit so that when the time comes to apply for your loan, your credit scores are high enough to qualify you for the best loan program. But life isn't perfect, matter of fact, it can be downright messy! If you find yourself suddenly wanting to purchase a home, but a few points shy of the credit score to qualify, there is something that may help.
There is a process called a "rescore" that we have used to help borrowers qualify. It is most effective if there is recent, but incorrect, derogatory information on your credit report. A recent collection that isn't yours, or a credit card or mortgage payment that shows 30 days late, but you know was not, for instance. It also can be done if you have recently paid down a credit card. If you get a letter from the creditor stating the derogatory item is incorrect, or what the new credit card balance is, the credit agency we use can fax the letter directly to the bureaus and request the information be corrected and your credit be rescored. The credit agency charges anywhere from $25 - $50 per creditor and there are no guarantees that your score will go up.
If you are a plan ahead kind of person, there are strategies you can live with to make sure when you apply for a loan your score is as high as possible.
Make sure that the information each of the three credit reporting bureaus has on you is consistent and up to date. Order a copy of your credit report about once a year, and dispute any inaccuracies.
Note: Theoretically, if a series of credit reports is requested on your behalf during a limited amount of time, your score goes down until time passes without any inquiries. Changes in the law though have made "consumer-originating" credit report requests not count so much. Also, a series of requests in relation to getting a mortgage or car loan is not treated the same as a number of credit card requests in a limited time. This is because the credit bureaus, and lenders, realize that people request their own credit reports to keep up with what's on them, and smart consumers shop around for the best mortgage and car loans.
Unsolicited credit card solicitations in the mail don't count against your credit report, so don't worry.
If you have collections on your credit, you can call the collection company and negotiate a deletion letter. Tell them you can pay the collection if they will delete it off your report. Before you commit to paying it, make sure they send you something that states they agree to that. Then pay it, and they will fax or mail you a letter stating the collection has been paid and is being deleted from your record. Deleting it is like it was never on there. Then send a cover letter, a copy of the deletion letter, and a copy of your credit report to the bureaus that are reporting the item. This is better then simply paying the item, because it gives you the opportunity to take it off your credit completely. This works with medical collections and some other types of collections. It can make your credit report look much cleaner to a lender.
The two main components of your credit score are your payment history and the amounts you owe. Bankruptcy filings and foreclosures, which can stay on your credit report for as many as 10 years, can significantly lower your score. It's never a good idea to take on more credit than you can handle.