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Real Estate Column - Keeping Your FICO Score Up Pays
By Glenn Rodriguez
Mortgage rates remain near all time lows. There are a lot of great deals out there right now for people who are looking to buy property or refinance their existing mortgage. In today’s lending environment your credit or FICO score is one of the most important things mortgage lenders are looking at. In a lender’s eyes, the higher your FICO score the more likely it is you will pay off your debt. If you have a low FICO score you are perceived to have less likelihood of making your payments and therefore are more of a risk to a potential lender. For this reason, borrowers with lower scores usually end up paying higher interest rates on their loans. There are a number of things you can do to make sure you credit score is as high as it can be. A couple of them may surprise you.
Should I pay off all my past due balances and charge-offs?
This is usually a good idea, but you only need to worry about the past due balances and charge-offs that have occurred in the last two years. Items more than two years old have little effect on your current credit score. In fact, if you pay off delinquent items over two years old, it can actually bring your credit score down - something you don’t want to do.
Should I close existing credit card accounts that I don’t use?
No.
Part of your credit score is determined by how much you owe compared to what is available to you. If you have credit cards that are near their limit it will lower your score. If you are not able to pay off your credit cards on a monthly basis you can transfer part of the debt from one card to another to even out the distribution of debt. Try to keep balances below 40 percent of the available credit limit if possible.
You might also see if your credit provider will increase your available credit. Assuming the amount you owe stays the same, your ratio of debt to available credit will be reduced as your available balance is increased.
What about errors on my credit report?
If your credit report shows an item that you know you have already paid or is showing that you were late on a payment that was made on time, you should have it removed. This is especially true of recent transactions. Late payments or derogatory items on your report within the last year can have a huge impact on your credit score. In some cases I have seen one late payment drop a person’s credit score by more than 75 points. Fixing your credit can be a time consuming and frustrating process but it can save you thousands of dollars.
Your fist step is to contact the creditor to ask them to remove the item. Ask them to send you and all three credit bureaus (Equifax, TransUnion, and Experian) a letter stating the item should be removed from your credit history. I recommend keeping a copy of the letter, sending a copy to all three credit bureaus, and then following up in 90 days to make sure it has been removed. If you have trouble reaching the creditor or they refuse to remove the error you can contact the credit bureaus directly to request the item be removed. The credit bureaus will then contact the creditors who will be obligated to fix the error within 30 days.
Getting your credit score up as high as possible can help even if you are not looking for a mortgage. If you are looking for a car loan, credit card or a place to rent chances are someone is going to look at your credit history. The higher your score the more options you will have.
Glenn Rodriguez is a senior loan consultant at Guarantee Mortgage. He can be reached at (415) 570-0400 or glenn@CaHomeFinancing.com.
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