Credit Score Myths, Loan Qualifying Tips & Recent Market Highlights

July 16th, 2014

A good credit score can mean lower premiums for home and car insurance as well as lower rates for home loans, but there’s a lot of misleading information out there when it comes to that topic.

With that in mind, here are some helpful tips on how to boost credit scores and qualify more easily for a home loan.

Credit Score Myths and Loan Qualifying Tips

Myth 1: Cancelling Old Lines of Credit Is Helpful

“Wait a minute, isn’t doing away with my credit cards a good sign?” One would think so, but in reality older credit lines can boost your credit rating by increasing your average account age. This means that cancelling those accounts can actually lower your credit score. Most experts will advise you to keep older accounts open even if you never use them.

Myth 2: Paying Off Debt Is Always the Best Move

Paying off debt may be good for your credit rating, but when you apply for a home loan the lender also needs to see that there are cash reserves at the time of closing (sometimes up to six months worth of mortgage payments).

If funds are tight but there’s leeway on the monthly income side when it comes to qualifying, it may make more sense to keep the cash for reserves instead of paying off a credit line. Your loan officer will be able to tell you which option is best for you.

Myth 3: Never Use Cards If You Don’t Have To

As amazing as it sounds, even people with very high income and low debt occasionally have trouble qualifying for loans, simply because they put away their credit cards years ago. This is because lenders want to see a track record of how you use credit.

The good news is that paying for just one meal a month using a credit card can set things right. It’s best to start soon enough that the transactions show up on several monthly statements.

Myth 4: One Late Payment Won’t Hurt

Forgetting to pay a water or cable bill is usually not the end of the world, but if there’s ever a time you don’t want to be late on a car or credit card payment, it’s prior to getting a home loan. Those types of accounts register 30-day late payments on your credit report the second they occur, and one event like that can cause a hit to your score that takes years to wear off. The safe solution is to put all credit lines on auto-payment.

Myth 5: New Accounts Help Establish Good History

Technically every credit line helps build your credit history, but recently-opened accounts can be a bad trade-off because newer lines of credit may actually lower your score, while a higher monthly debt burden can decrease your chances of qualifying for a loan.

This means that even if a future home purchase is pending and there’s a fantastic deal with no-interest financing at the furniture store, as a buyer it’s best to wait until after the closing to take advantage of it.
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What They Often Don’t Tell You…

1. The only place to get a truly free annual credit report is at www.AnnualCreditReport.com.

Other websites offer free reports only if you sign up for monthly ongoing paid services such as credit monitoring.

2. The only place to get your real FICO score is at www.myFICO.com.

When you go to Experian, TransUnion, and Equifax they will offer to sell you your credit score, but what you receive is actually an “educational” score, which is often much different from the FICO score most lenders use.

Note: FICO scores range from 300 to 850. In general, above 700 is considered good, and above 760 is considered excellent.

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Recent Market Highlights

- U.S. home prices rose 10.8 percent year-to-year in April, according to a recent S&P/Case-Shiller report. They rose 8.8 percent year-to-year in May, according to CoreLogic, a data and analytics company.

- The national average 30-year fixed mortgage rate recently dropped to just over 4 percent, but has since headed back to over 4.25 percent after a strong employment report.

The Pending Home Sales Index dropped 5.2 percent year-to-year in May, according to the National Association of Realtors®, but was up sharply compared to April.

Note: Housing statistics based on closed sales typically reflect market conditions of two or three months ago. To find out what’s going on right now in our local market, please call me directly.

Are you planning to buy or sell a home, or do you know someone who is? Please call or email me – I’m never too busy to help you and the people you care about with real estate.

(The information in this newsletter is deemed reliable but not guaranteed. Please always consult a qualified expert before making decisions based on this content. Nothing in this article is meant to be taken as expert legal, financial, or medical advice.)


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