Posts Tagged ‘Mortgages’
Credit Repair and Your Mortgage Rate
Do you plan to apply for a mortgage soon? A nationally recognized credit repair expert discusses the latest change in the way the mortgage industry determines your interest rate, and what you can do about it.
Mortgage Time
Your mortgage is probably the largest financial obligation in your life; and the interest rate on your mortgage can have a major impact on your monthly budget. Here is a very important fact you may not be aware of. Early in 2008, with very little publicity, mortgage lenders began to implement new risk based pricing schedules. Risk based pricing is tiered pricing based on credit score, and will affect your life more than you think.
What Risk Based Pricing Means to You
Tiered mortgage pricing may sound like old news, but it is a significant departure from old pricing methods which treated all prime borrowers the same. Under the new pricing methods you may qualify for the best home mortgage available, but end up paying a premium rate if your credit scores are in the low end of the acceptable range. Conversely, you will be rewarded for having excellent credit. The potential payoff from an intelligent credit repair effort has never been greater. From now on every point on your credit score counts.
The Subprime Dilemma
In mid 2006 subprime lenders began to close their doors. Today only a few subprime lenders remain. There was a time when a subprime mortgage was a reasonable alternative for a borrower with credit issues. In many cases subprime rates were comparable to prime loan rates. Those days are over. Subprime rates now carry a significant premium. Many borrowers find themselves faced with a choice between a subprime mortgage and postponing their purchase until their credit improves. Many prospective borrowers choose to delay their purchase and join a credit repair program.
Credit Repair, Getting Started
There are many ways to repair your credit. If you do not have any time constraints, I advise you to contact a credit repair professional for a consultation and then do whatever is needed to clean up your credit and optimize your credit scores. If you have limited time you will want to be very cautious about making any changes. The right choices can translate into thousands of dollars over the life of your mortgage.
Credit Building
You may be aware that mortgage lenders often require that you have a minimum number of current accounts reporting on your credit. Aside from this common lender requirement, open accounts will be a boon to your FICO score. If you have limited credit you may want to open two or three new secured credit cards; credit building is often a critical step in the credit repair process. But beware that it can take up to four months to get the benefit of these new accounts. In fact, initially your credit score will fall. This is because the FICO model will see a new inquiry and a new account with no track record at all. So, if you need your credit score in the immediate future you should not be opening new accounts today.
Reduce Those Revolving Balances
Reducing your revolving balances can have a significant impact on your credit scores and provide a great start to your credit repair effort. The current FICO scoring model considers 5 different debt-to-limit ratios. The lower your balance compared to your credit limit the better your score. The 5 ratios currently in use are 20%, 40%, 60%, 80%, and 100%. If you have the ability to reduce your balances to below 20% of your limit you will get the greatest benefit. The potential impact is so significant that many people borrow from friends and family to make this happen. On the other side of the coin, to let your balances approach 100% of your high credit limit can shave 50 points or more from your score.
The Power of a Rapid Rescore
If you have paid down the balance on a revolving account and want to accelerate the process of updating your credit scores, you may contact the credit card issuer and ask for a letter stating your new balance. When you get the letter, give it to your mortgage broker and ask them to do a rapid rescore. Within three days your scores will be updated to reflect the new low balances. A rapid rescore is a powerful credit repair tool offered only through mortgage brokers. You cannot request a rapid rescore through the credit bureaus.
Watch Your Step
If you will be applying for a mortgage soon you should be cautious about all credit activity. Paying down account balances is always fine, and opening new accounts, as mentioned above, may be a necessary step in your credit repair program if you have enough time. Generally speaking any credit repair effort should be made carefully with an understanding of the implications for your FICO scores. If you are uncertain, consult a professional. It’s your credit!
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Compare Credit Cards
The most important aspect to be careful while dealing in a credit card is its interest rate. Many cards have different interest rates and the best rate will always help customers to save money.
However, the interest rate is the tool that provides profits to the card company and therefore the company will also make maximum efforts to make changes to it in order to generate more profits. Therefore while buying a credit card, customers need to be very careful to obtain the best interest rates. They also need to be astute enough to keep a tab on the interest rate each month since companies have a habit of increasing interest rates without proper notice.
Most companies provide a catch when they provide the card to the borrower. For example, they may so modify the terms and conditions of the card offer that it may often be a financial drag on the customer when they least expect it. For example some card documents may read that the interest rate with never go down a particular limit. This means that there is every chance for the interest rate to go above that level.
It is often a good idea to keep a tab on the interest rates that one is paying. For example, it may be seen that increasing interest rates are almost always associated with a hike in interest rates that the company would have hiked without prior notice. If one notices an unexplained hike in interest rates, it is good to consult the card company and find out why the interest rate has gone up suddenly. Often it makes sense to consult the company and ask them to reduce their interest rate that has gone high
If one has a history of timely payments, one can bargain with the company to get the best deals from the market.