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We’ve all seen the commercial: the smug financial wizard warns us, “I’m thinking of a number between 450 and 850; can you guess what it is?” We grit our teeth, we change the channel, but we know, when he tells us that the number is his credit score, and it can help him save a lot of money, that he’s right. Your credit score is one of the most important aspects a lender will take into consideration when defining the terms, rates and parameters of your mortgage.
By keeping your credit score in check, you can help make the process of
buying your dream home from becoming a total nightmare. With every
purchase you make on plastic, with every payment you send in to your
credit card company, you place yourself in the seat of judgment before
the three credit bureaus: Experian, Equifax and Transunion. They each
tabulate a score based on your patterns of borrowing and paying back,
and their three decisions, combined with other factors, become your
credit score.
So you want to keep your credit score high, how can you do that? Well,
the simple way is to borrow responsibly and pay back on time.
We may all know of one enterprising young man who, at the age of 18,
began taking out the largest loans the bank would give him. He’d sit on
the money, happily paying interest, then pay back the whole sum when it
was due. He did this several times, qualifying for larger and larger
loans, always paying the full amount on time. By the time he was ready
to buy a home, his credit report was almost perfect, and the low rates
he received on his mortgage more than made up for the interest he’d
paid on all those loans.
But for those of us without such foresight, what can be done? First,
make a budget and stick to it. Only make purchases as a convenience,
and never as a way to buy something you can’t afford at the time.
Second, pay your bills on time (early if you can). You can even set up
automated bill payments and schedule them for up to a week before their
due date. Third, watch for those special retail hooks that drain your
credit score such as special in-store credit cards that offer 10% off
today’s purchase or special ‘make no payments for three years’ offers.
Finally, keep your credit history in your own hands: call the Consumer
Credit Reporting Industry Opt-in and Opt-Out hotline at 1-888-567-8688
to get rid of unwanted credit card offers and unwanted searches of your
credit report.
If your score is in good shape, enjoy the benefits of a clear history.
If it falls below 720, it’s time to talk to your mortgage banker: they
can recommend steps to raise your score and get you on the fast track
to low rates and an outstanding mortgage.
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