Establishing and improving your credit

June 3, 2019

Credit scores and credit history are two of the most critical elements when applying for a mortgage.

Whether you need to establish a credit profile, rebuild after a derogatory credit event, or would simply like to improve your credit to qualify for better mortgage programs or interest rates, understanding how credit works and knowing a few helpful hints can mean the difference between treading water and getting ahead.

If you have no credit history and need to build it from scratch, you’re in a great position to achieve an excellent credit rating. You'll want to start by opening a few small-limit, "entry-level" credit cards and/or store cards. Use them a little and pay off the balances every month. You could also become an authorized user on an account, or get a co-signer for a personal or auto loan.

After six months of managing your new credit in this manner, you should have sufficient history for the bureaus to generate scores. At this time, you may wish to add a few more accounts, or replace cards that have annual fees with ones that don't.

As long as you've been paying these accounts on time and have avoided letting any other accounts go into collections, you should have nothing but positive credit on your report and some fairly good scores. Many mortgage lenders like to see a minimum of 12 months credit history, so keep managing your new accounts, and your scores should be even higher at the end of that first year.

Should you find yourself needing to repair your credit after some questionable decisions or unfortunate events, all is not lost, and you can accomplish a significant improvement by following many of the same steps previously outlined.

Consumers new to credit may get more offers and lower interest rates, but there are still plenty of options for those needing to re-establish and rebuild their credit profiles. Secured credit cards, where the limit is backed by a deposit, are often used for this purpose.

If you're still having difficulty increasing your scores, you may want to consult a credit specialist or mortgage professional who has access to a credit enhancement program. Many of these programs are free, and analyze credit reports to provide specific, detailed instructions for each consumer.

If you sign up for a credit monitoring service like Credit Karma, or use the scores provided by your credit card company, just keep one thing in mind: While these services are a great way to keep an eye on your credit, the scores they provide are not the same as the scores a mortgage lender will get.

In order to find out if you qualify for a mortgage, a loan officer will need to pull and review your credit report. A 620 is typically the magic number for almost every mortgage program on the market. A 640 opens up a few more options, and you start to see a real difference in what interest rate you qualify for at 680. It's never too early to take the first step on the path to home ownership. To start exploring your options, contact a mortgage professional today.

Chad C. Moore is a licensed mortgage loan officer, vice president and military lending specialist of the Mortgage Market of Delaware, and a veteran. For more information, email or call 302-236-9397.



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