There has long been a bit of myth and mystery surrounding credit reports and particularly, a person’s credit score – which is not etched in stone but is actually organic in nature. It is a software driven number that calculates a score based on how creditors rate your financial risk. A credit score is a quick snapshot of the current moment that represents your level of credit risk discerned from information reflected on your credit report. The scores are calculated, along with your credit report, when potential lenders make a credit inquiry – very often at the time you apply for a home mortgage.
Uncovering Red Flags
Accurate information that contributes to a bad credit picture is one thing, but if you are preparing to buy a home, you should obtain copies of your credit reports and carefully review them for any errors or bad information that may negatively impact your credit profile. Correcting bad information can take some time to be integrated into your credit report, thus impacting your adversely.
You can order your free credit report from TransUnion, Experian and Equifax. These are the three companies that lenders most frequently request credit report information from.
When Credit Reports Are Updated
Typically, your creditors report your standing regarding debt with them once per month. This includes missed or late payments, or payments made that are less than the minimum. So, even if you pay off an entire $5,000 balance, it may very well take a month or more for that debt to not appear on your credit report.
Too Many Inquiries
Applying for new credit cards, insurance and mortgages are considered “hard inquiries” and can impact negatively on your credit report and score. Keeping your inquiries to a minimum in any given time period is best. In other words, don’t shop for a new car while applying for a mortgage.
Credit Takes Time
There is essentially no “quick fix” that will improve the organic nature of your credit score, as it does take time for positive actions to impact your credit report and translate into a better score. However, lenders will look for consistency and low risk. Some actions that reflect positively on a credit score are:
- Making on-time credit payments
- Paying off credit card balances
- Avoiding having too much credit
MIG’s Credit Repair
If your credit report is less than stellar, it does take some time to clear it up. It is recommended that a potential mortgage applicant spend at least six months repairing credit before applying for a mortgage. Some steps to take before applying for a mortgage include:
- Order free copies of your credit report
- Check your credit report for errors and correct them
- Pay off any delinquent credit accounts
- Decrease your debt-to-income ratio
- Make on-time payments
- Don’t create new credit debt
Rapid Rescoring
If you have had to repair your credit and are concerned about the delay it may take for your actions to actually show up on your credit report, MIG may be able to assist with implementing a technique called Rapid Rescoring, which updates new information within days, versus the normal wait of several weeks.
