Monday, March 24, 2008

WHAT’S YOUR SCORE? REPAIR CREDIT RATING NOW BEFORE IT’S TOO LATE

The credit crisis is turning the American Dream of homeownership into a nightmare for millions of families, experts say.

With 7.9 percent of the nation’s home loans in foreclosure or past due at the end of 2007, most economists are predicting that more borrowers will encounter financial trouble.

Even though benchmark 30-year fixed home-loan rates are around 6 percent—near a 40-year low—it is likely that fewer home buyers will qualify for an illusive mortgage under today’s tougher credit standards. So, what can the average Joe do to improve that credit score?

“Credit remediation is a subject consumers often face with fear and trepidation, and for good reason,” said Michele Schwartz, a loan office with Chicago Funding based in Tinley Park.

With the exception of recognizing that the best score wins, the average home shopper knows very little about the whole credit scoring process, Schwartz said.

“Sub-prime borrowers who are eager to move into A-Paper territory often find themselves at a loss when trying to find ways to upgrade their credit history,” Schwartz said.

The good news is there are ways to improve less-than-perfect credit scores and obtain a loan for the home you really want, she said.

“The first step in the process is making sure that you have a current copy of your credit report,” Schwartz said. “Congress recently amended the Fair Credit Reporting Act so that consumers may now receive one free credit report annually.”

There are three major credit bureaus: Equifax, Experian, and Transunion. Since entries can vary across bureaus, you’ll want to request a free report from each of the three companies. Visit www.annualcreditreport.com.

It’s also important to know just what a good credit score is. “Most A-Paper scores generally begin around 680, although this number may differ slightly among lenders,” Schwartz explained. “Don’t despair if you come up shy—there is always room for improvement.”

Increasing your credit score just five points can save a significant amount of money. For example, if your score is 698 and you increase it to 703, then you could save yourself thousands of dollars over time as a result of a slight improvement to your loan’s interest rate, Schwartz said.

While credit repair is necessary for some, it's not the only way to increase your credit score. Even if you have stellar credit, you can enhance your score through the following steps:

• Evenly distribute your credit-card debt to change the ratio of debt to available credit. “Let’s say you have a credit score of 665,” Schwartz explained. “If you have debt on only one card, and four additional credit cards with zero balances, evenly distributing the debt of the first card could move you closer, and possibly into, that ideal bracket.”

• Keep your existing accounts open and active. “The average consumer is usually anxious to close credit card accounts that have zero balances, but doing this can cause them to lose the benefits of a long-term credit history and increase their ratio of debt-to-available credit,” Schwartz said. “The bottom line is don't close those old accounts!”

• Keep credit inquiries to a minimum. Each inquiry into your credit history can impact your score anywhere from 2 to 50 points. “When it comes to mortgage and auto loans, even though you’re only looking for one loan, multiple lenders may request your credit report,” Schwartz said. “To compensate for this, the score counts multiple auto or mortgage inquiries in any 14-day period as just one inquiry, so try and stay within that time frame.”

Improving your credit score requires time and diligent effort on your part, so it’s a good idea to start at least three to six months prior to submitting your application for home financing.

“If you’re facing severe or complicated credit issues, then you’ll probably want to enlist the assistance of a professional credit repair company,” Schwartz advised.

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