How Can I Get My Credit Scores Higher?

The credit situation for each person looking to purchase a home is unique. Let’s look at the basics of attaining and maintaining high credit scores.

If your credit needs further attention than what it would currently take to purchase a home, if needed, we can tap into other resources that may be able to help get you to that point. The first thing, and this can’t be overstated, is to start as early in the process as you are able to. This may mean when you are just thinking about purchasing a home.

The first thing to keep in mind is to pay your bills on time. This sounds overly basic, but it needs to be said. Lenders look for patterns in your ability to pay your monthly obligations on time, including rent payments, car payments, credit cards, etc. Late payments, especially recent ones, will drive down your credit scores.

The second thing to keep in mind is that even if you are paying your bills on time, you want to show lenders that you are living within your means. Credit scores favor those borrowers who have low debt and specifically low balance-to-limit ratios on credit cards. Maxed-out credit cards, especially multiple cards, will lower your credit scores.

Credit scores will adjust as these balances are paid off, but, as stated above, this may take time, and knowing what needs to be done earlier rather than later will make the process go more smoothly.

I am here to help you get into a buy-ready position, and if you have more questions about credit within the mortgage process, I am only an email or a phone call away. I would be happy to go over the options and help you determine what is right for you and your circumstances.

I Have Collections or Judgments Against Me – What Now?

Let’s look at the terms “collection” and “judgment.” A collection is a debt that the creditor has been unable to collect from the person to whom they have provided goods or a service. Often these are medical related. A judgment is a legal and public ruling that requires one person to pay another for something.

The mortgage program you choose to finance your home will have guidelines that will determine what happens with each type of credit item.

Conventional mortgages are those that use guidelines from Fannie Mae and Freddie Mac. In their March 3, 2021 guidelines, they state that typically, and there are exceptions, collections don’t need to be paid back, but judgments do, either before or at closing.

FHA has a different approach. Their guidelines, effective November 18, 2020, state that any derogatory credit accounts over $1,000 may need to be paid back. Judgments with FHA are either going to be paid off before closing, or if there is a preexisting agreement with the creditor and those payments have been made on time, that agreement may be able to stay in place.

Before paying off any collection, see how old it is. Some collection accounts, especially smaller and older ones, have less impact on your scores over time.

When you pay them off, you are “updating” them on your credit report, and they may temporarily drop your credit scores.

Let me help you review your collections and judgments, and let’s put together a plan to get you in a buy-ready position.