Do you plan to apply for a mortgage soon? A nationally recognized credit repair expert discusses the latest change in the way the mortgage industry determines your interest rate, and what you can do about it.
Mortgage Time
Your mortgage is probably the largest financial obligation in your life; and the interest rate on your mortgage can have a major impact on your monthly budget. Here is a very important fact you may not be aware of. Early in 2008, with very little publicity, mortgage lenders began to implement new risk based pricing schedules. Risk based pricing is tiered pricing based on credit score, and will affect your life more than you think.
What Risk Based Pricing Means to You
Tiered mortgage pricing may sound like old news, but it is a significant departure from old pricing methods which treated all prime borrowers the same. Under the new pricing methods you may qualify for the best home mortgage available, but end up paying a premium rate if your credit scores are in the low end of the acceptable range. Conversely, you will be rewarded for having excellent credit. The potential payoff from an intelligent credit repair effort has never been greater. From now on every point on your credit score counts.
The Subprime Dilemma
In mid 2006 subprime lenders began to close their doors. Today only a few subprime lenders remain. There was a time when a subprime mortgage was a reasonable alternative for a borrower with credit issues. In many cases subprime rates were comparable to prime loan rates. Those days are over. Subprime rates now carry a significant premium. Many borrowers find themselves faced with a choice between a subprime mortgage and postponing their purchase until their credit improves. Many prospective borrowers choose to delay their purchase and join a credit repair program.
Credit Repair, Getting Started
There are many ways to repair your credit. If you do not have any time constraints, I advise you to contact a credit repair professional for a consultation and then do whatever is needed to clean up your credit and optimize your credit scores. If you have limited time you will want to be very cautious about making any changes. The right choices can translate into thousands of dollars over the life of your mortgage.
Credit Building
You may be aware that mortgage lenders often require that you have a minimum number of current accounts reporting on your credit. Aside from this common lender requirement, open accounts will be a boon to your FICO score. If you have limited credit you may want to open two or three new secured credit cards; credit building is often a critical step in the credit repair process. But beware that it can take up to four months to get the benefit of these new accounts. In fact, initially your credit score will fall. This is because the FICO model will see a new inquiry and a new account with no track record at all. So, if you need your credit score in the immediate future you should not be opening new accounts today.
Reduce Those Revolving Balances
Reducing your revolving balances can have a significant impact on your credit scores and provide a great start to your credit repair effort. The current FICO scoring model considers 5 different debt-to-limit ratios. The lower your balance compared to your credit limit the better your score. The 5 ratios currently in use are 20%, 40%, 60%, 80%, and 100%. If you have the ability to reduce your balances to below 20% of your limit you will get the greatest benefit. The potential impact is so significant that many people borrow from friends and family to make this happen. On the other side of the coin, to let your balances approach 100% of your high credit limit can shave 50 points or more from your score.
The Power of a Rapid Rescore
If you have paid down the balance on a revolving account and want to accelerate the process of updating your credit scores, you may contact the credit card issuer and ask for a letter stating your new balance. When you get the letter, give it to your mortgage broker and ask them to do a rapid rescore. Within three days your scores will be updated to reflect the new low balances. A rapid rescore is a powerful credit repair tool offered only through mortgage brokers. You cannot request a rapid rescore through the credit bureaus.
Watch Your Step
If you will be applying for a mortgage soon you should be cautious about all credit activity. Paying down account balances is always fine, and opening new accounts, as mentioned above, may be a necessary step in your credit repair program if you have enough time. Generally speaking any credit repair effort should be made carefully with an understanding of the implications for your FICO scores. If you are uncertain, consult a professional. It's your credit!
Copyright ? 2007 James W. Kemish. All Content. All Rights Reserved.
The right time to review your credit scoring is now because the credit score is becoming more important for mortgage prices. You can make the credit system work for you if you have the knowledge of how the system works. For research or review look at myFICO.com Equifax is one of the primary credit bureaus and is the publisher of my FICO.com. This site provides a wealth of suggestions, tricks and tips that will help you figure out the credit scoring system. Following are some of the basics: Use your credit or lose your score: You need to get on the credit "bandwagon" if you want a credit score assigned by the credit agencies. Even if you charge a small amount and pay it off each month, you'll be on the radar and have a score. 30 Is The Magic Number: Holding your credit card balances below 30 percent of their respective limits shows an ability to manage credit responsibly. Before consolidating multiple credit cards onto one credit line, consider that card's credit limit. Overload it and the consolidation could hurt your credit score. The Trend Is Your Friend: A track record of paying accounts on-time means that you're likely to continue paying on-time. Credit bureaus like on-time payments. If you've been late, catch up immediately. At 35 percent, this is the largest component of your credit score. Learn From History: Your "credit history" is 10% of your score. So, to hold that history, don't close credit cards that you don 't use. There are more helpful hints available at the Web site so with additional credit score adjustments to mortgage rates expected later this year, the best way to protect yourself is to be proactive. Identify potential issues in your credit profile and work to improve them. We all want the best mortgage rate possible, but are not always clear about the best way to get credit scoring formation . Please speak with your loan officer about getting the personal information that you need.
Both Jim Kemish & Rob Kosberg are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Jim Kemish has sinced written about articles on various topics from College Student Loan, Credit Loans and Free Credit Report Score. Jim Kemish, a nationally recognized expert, is the president of Sky Blue Credit, a leading credit repair business since 1989. Jim is also the president o. Jim Kemish's top article generates over 301000 views. to your Favourites.
Rob Kosberg has sinced written about articles on various topics from Credit Counseling, Credit Loans and Free Credit Report Score. With unprecedented problems in the credit markets it's more important than ever to have excellent credit. For more information check out Rob Kosbergs' Detailed FREE Guide on Maintaining and Repairing your Credit Score by going to. Rob Kosberg's top article generates over 60500 views. to your Favourites.