I have been in the Mortgage Industry in the New York and New Jersey Metropolitan area for almost a decade. Over the course of this time, I have met with many clients who were surprised to learn that they have unjustified poor credit issues. From making a mistake by an Auto-Pay payment, to opening new credit cards, there are many things that customers often don’t realize can result in a drop in their credit (FICO) store.
Many people are surprised to learn that your FICO is not representative of your income or financial assets. It only represents your payment history and your available credit balances. For the best rates on a mortgage loan, a FICO score of 700 is preferred.
But the good news is that there are some easy tips to help you avoid any problems on your Credit Report when you are ready to apply for a mortgage. Here are my top 4:
4 Tips to avoid Credit Report Errors:
1. Get a copy of your current credit report and examine it carefully.
If you find any errors, prepare a letter to the credit bureaus that is reporting it and explain the mistakes. They must investigate the reported error and confirm it or remove it from the report.
2. Be prepared to explain late or missed payments.
Late or missed payments due to the negligence of the borrower will always be a red flag. However, if it can be explained to the satisfaction of the lender, it could be discounted. If the explanation showed unusual or unforeseen circumstances on the borrowers part, it could be taken into consideration from the lender. This would typically show a one-time event that was unlikely to reoccur, such as:
- -Time off work due to temporary illness affecting income
- -Loss of employment
- -Incorrect Billing
3. Pay attention to anything on AutoPay.
A new problem with home mortgages is AutoPay. If your property taxes increase, and if the AutoPay amount is not adjusted, the added payment is short and not credited until the following payment is received. This can show months of late payments before it is caught and corrected.
4. Limit opening any new credit accounts and/or closing old ones.
It is better to have many older accounts, with low percentage owed on available credit, than a few new accounts close to the credit limits. The interest rates on credit accounts do not affect the score.
Most people don’t realize that it could take several months for improvements to show up in your credit score. Putting your finances in order early can help maximize your ability to qualify for the mortgage you want and can afford.