Understanding Your Credit Score and Its Effect on Purchasing a Home
By Keith Loria
Unfortunately, many prospective buyers don’t think about their credit score until they’re already in buying mode. And more often than not, at this point, it may be too late to do anything to fix your credit score. Therefore, it’s important to remember that if you have a bad credit score, it’s not something that can be fixed overnight or by simply making a phone call.
If you’re not sure where you even stand on the credit score spectrum, the first thing you’ll want to do is obtain a copy of your credit report. Your report will list all the details that were used to calculate your score, including past payment information concerning loans, credit cards and other bills.
According to the Federal Trade Commission, nearly five percent of consumers have a major error on their credit reports, and approximately 25 percent of all reports have some sort of error that can negatively affect a score.
Once you receive your credit report, look it over and make sure there are no errors or discrepancies. For instance, if there’s an entry for an outstanding bill on a credit card or a late payment on a car loan that’s incorrect, you’ll want to take action quickly, as these items will lower your credit score. Be sure to dispute any errors you find with the Credit Bureau.
If there are no mistakes within your report, and your score isn’t where you want it to be, there are a number of things that can be done to gradually increase your number. To start, make a list of the money you owe and start paying off any debts you may have incurred over the years. Eliminating debt is the best way to see your score rise. Also, be sure to pay everything on time path forward. Late payments are seen as a huge negative when it comes to your credit report and overall score.
You’ll also want to refrain from opening any new accounts or taking out other loans, as this will simply add to the problem. Be sure to stay away from closing accounts that you have a strong history with as well. By closing accounts, you run the risk of eliminating a good payment record.
And last but not least, beware that debts that get sent to a collection agency typically stay on your report for years. While most people think paying these items off will cause them to vanish from their credit report, it’s simply not true.
If you feel that all hope is lost, there are agencies out there that you can pay to help you improve your report and remove negative items. Before you go this route, think about the expense you’ll be incurring, and whether it’s worth it in the long run.
Checking your credit score is something you should think about doing annually regardless of whether you’re planning to move or not. By keeping up to date with your report, your credit score will be solid when you’re ready to buy your next home.
To learn more about understanding your credit score, contact our office today.
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