SIX Things you can do to Improve Your Credit Score

Q: What do you advise a financially fit homebuyer to do to increase their credit score or make themselves more attractive buyers, to qualify for the lowest mortgage rates?

A: A FICO score of 700 (FHA)/740 (Conventional) or better qualifies you for the lowest rates. In fact, it qualifies you just as well as a higher score, so if you’re at or over 700/740, there’s no loan qualification rationale for investing effort into boosting it. But these are firm breaking points. The difference between a score of 698 and a score of 700 (in an FHA loan scenario) can cost you a quarter of a point in interest, or thousands of dollars over the life of your mortgage.

I’ve found that people asking about how to boost their credit to qualify for the best interest rates is similar to people asking me how to lose weight: I tell them the truth, then their eyes glaze over when I give them the straight dope, no magic bullets. No one wants to hear: eat vegetables, cut the sugar, and exercise; similarly, they don’t want to hear pay your bills on time, every time.

But I’ve been asked this question a lot recently, so here goes, anyway!

1. Pull your reports online – get them for free, no strings attached, at the government authorized website AnnualCreditReport.com. This doesn’t get you your actual FICO scores, but it does get you the content of your report. Look for errors that could be depressing your score, like accounts that don’t belong to you, balances that are actually lower than reported, old debts that are paid off that should have been removed entirely (7 years for credit cards, 10 for bankruptcies).

2. Consider reopening accounts you thought were open but have been closed because you haven’t used them in so long - it will help boost your utilization ratio, one element of your credit score that is dependent on how much available credit you have.

3. Pay down some debt. This both decreases your debt-to-income ratio (36% is the goal, including the proposed mortgage payment) and increases your credit score, if you do it right (see the next tip).

4. Don’t close any accounts. Instead, spread your debt out. The ideal utilization ratio is about 20-30% of your available credit overall, and on any given account. Closing accounts reduces the amount of credit that is available to you, so it makes it look like you’re closer to being maxed out.

So if you have one card that’s near its max and several others that have zero balances and you’re trying boost your score a bit, quickly, consider balance transfers to spread our your debt more evenly, aiming for 20-30% of the available credit on each card.

5. Use your credit regularly – and pay it on time, every time: Having a good FICO score doesn't happen because you have sound personal finances, including no debt. FICO scores are a measure that shows that you have a history of responsibly using and managing and repaying your debt on an ongoing basis.

6. Finally, check in with your mortgage broker. Have them pull your report and score, as the report they pull is the one they’ll have to go by in the final analysis. If you’re really close to a score level higher, that would empower you to qualify for a lower rate, they can actually run a credit diagnostic on your score and generate some recommendations for which actions you could take to raise your score by the needed few points. Then many of them can do what’s called a ‘Rapid Rescore’ – once you’ve paid that bill off, they can actually submit a request directly to the credit bureaus to update that information and your score in just a few days.

None of these tips will get someone with a 500 credit score to a 700 (other than a massive debt reduction program). But if you’re trying to get a little boost to get you over a credit score hump, these can be potent, and save you beaucoup bucks in interest.
written by Tara@Trulia700 credit score

What a Short Sale is

When a owner is in trouble with making payments on a property, he/she may try to sell the property to avoid foreclosure. Typically in these times there is a first loan on the property and a second loan. There also may be unpaid property taxes and penalties on their missed payments. Usually the owner has to submit to the lenders a “Hardship Letter” to the lender(s). Then the lender makes the decision whether to allow the sale. The lender(s) would have asked the owner to hire a Realtor to do a “Brokers Price Opinion” (BPO)and submit it to the lender(s). In current times, the value of the property is often less than the combined loans, back taxes and penalties. The lender(s) would then agree on an offer price that they would accept and the Realtor would begin to market the property. Once an offer was received it would be sent to the lender for final approval.
Recently, maybe because there are so many short sales coming up, or there are owners and Realtors who may be unsure of what the process is, the property is put on the market before doing the previous steps. Offers are received and then they are all sent to the lender hoping one will be approved. This is why you might hear from someone who put an offer on a short sale 4 months ago and they still haven’t heard anything.
These are the things you need to know when thinking about making an offer on a short sale:
1. Ask your Realtor if a hardship letter was presented to the lender(s) prior to the time the property was put on the market
2. Ask your Realtor if a BPO was done and approved
3. Ask your Realtor to find out the amount of the current loans on the property
4. Have offers been received and how long have they been at the lender waiting for approval
I might be going out on a limb here, however, my experience tells me that if the first 2 steps were skipped the process will take longer. The lender(s) will “sit” on the offers until they receive one that more closely covers the current loan amounts. If they have to lose money on penalties, those are just paper loses to them, however they might approve an offer if they still may get the whole principal owed.
For example, there is a property listed for sale at $790k. it’s a s short sale. The two loans on the property are 560k and 140k respec tively. With the back taxes, penalties and the commission for selling the property the purchase price will closely cover most of the debt. Buyers are able to get their offer approved and close escrow. The owner is able to walk away without a foreclosure on his credit report. The Realtor was smart and knew how the process worked to get good results for his seller.
Another case, which is more common, is when the loans, penalties, property taxes all amount to more than the property is valued at. And the owner did not start the process with the lenders. The owner puts the property on the market with a not so informed real estate agent who markets the property below market value. Offers are received and sent to the lenders for approval. The purchase price may cover the lender who is in first position; and then they’re happy. But the lender who is in second position may not get the whole amount due or may end up getting nothing. They are not happy, they hold up the approval of the sale. Both lenders have to agree on releasing the loans in order for the property to be sold. This is why the offers can sit in someone’s “In-box” for months. Eventually, if the owner is lucky and his real estate agent gets smarter, an offer is finally received that is closer to the amount of both loans and the offer gets accepted and closes escrow. The buyer(s) are happy, the owner is happy, he has avoided foreclosure.