I’m Planning to Apply for a New Georgia Home Mortgage Loan. How Can I Improve My Credit Score?
When a consumer applies for a Georgia home mortgage loan, the lender will review his or her credit score. Credit scores are mysterious numbers that indicate how likely a borrower is to repay his or her debts in the future. Therefore, mortgage lenders typically offer lower interest rates to consumers with higher credit scores, while consumers with lower scores may be offered higher interest rates.
Although all three of the major credit bureaus use the same scoring formula to determine an individual’s credit score, the information available to each bureau often varies. Therefore, credit scores often vary between bureaus.
For example, if one of the credit bureaus has erroneous information about an individual in its system, the individual’s credit score could be lower when obtained through that credit bureau. Since lenders typically review the credit score from all three bureaus when a homeowner is refinancing a mortgage or buying a new home, a borrower should make sure that any potential errors on his/her credit report are corrected with all three of the major credit bureaus—Equifax, Experian, and TransUnion-- before applying for a new home mortgage loan.
According to Fair Isaac Corp.—the company that developed the credit scoring formula-- credit scores are determined by the following factors:
35% of the credit score is made up of payment history. Important factors include the number of accounts that a customer has and whether or not payments were made on time. Both current and previous delinquent accounts are also considered, as well as the length of time that the delinquency lasted. Bankruptcies, liens, collection activity, and foreclosures are also considered.
30% of the credit score is made up of total debt. Important factors include the amount of debt that a consumer has and the percentage of the total credit line that has been borrowed. A credit score will be negatively affected by a high ratio of debt to available credit. Unpaid balances that exceed 50 percent of the credit limit will have a negative impact on a credit score, even if the account has been open for a long time with no late payments.
15% of the credit score is made up of the length of credit history. Important factors include the length of time each account has been open as well as how much time has passed since the account was last used.
10% of the credit score is made up of the number of credit inquiries. Credit inquiries that are initiated when the borrower applies for a new credit card or loan have a negative impact on the credit score.
10% of the credit score depends on the various types of credit in a consumer’s credit file. A diversified mix that includes credit cards, installment loans, and mortgages will get a higher score. Having too few or too many open accounts can detract from the score.
Although it is difficult to quickly improve a credit score, there are steps that a Georgia homebuyer can take that may improve his or her overall credit score:
1. Make sure that all credit card balances are under 33% of the card’s available credit limit.
2. Pay at least the monthly minimum on each credit account.
3. If there is an error on your credit report, notify each of the three credit bureaus—Equifax, Experian, and TransUnion—immediately. Reporting the error to only one of the credit bureaus is not enough.
4. If an account has been paid off, keep it open.
5. Don’t use more than half of a credit line’s available credit.
6. Do not apply for new credit cards while going through the application process for a new Georgia home mortgage.
7. Avoid major purchases in the months prior to the closing of your new home mortgage.
8. If there are disputed accounts with balances of more than $1,000, they should be either paid in full or set on a repayment plan at least 90 days before closing.
9. Pay all debts on time.
Whether you’re buying a new Georgia home or refinancing your current residence, contact Atlanta’s best mortgage company, Peachtree Mortgage Services, Inc., by email at firstname.lastname@example.org or by phone at 770.698.9394.