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Tips for Improving Your Credit Score

When it comes to home buying, your credit score will be critical in determining the interest rate on your mortgage or even if you are offered a mortgage at all. Although there is much information available regarding how to improve your credit score, many of them provide general tips rather than specific methods for raising your score so that you qualify for the best rates. These tips will provide you with a roadmap to improving your score. Although it may take a little time to achieve the score you want, by being dedicated and focused on the improvement, you can get the home of your dreams at the interest rate you can afford.

Reduce Average Usage

One of the best ways to improve a credit score is to reduce the average usage of your revolving credit accounts. Ideally, the balance of all revolving accounts should remain at or below 30% of your available balance for credit scoring purposes. Unfortunately, only making minimum payments may not be sufficient to actually help your credit score if you are never able to pay the balance down below the 30% mark, and may actually hurt your credit score more if your interest is adding to your balance each month even after your minimum payment.

Pay Down Balances When it comes to determining your credit score, the calculation will be based on a total of all of your revolving accounts. This means that if you have three cards with a $500, $1000 and $1500 limit, your total revolving accounts will be $3000. The goal will be to keep your total balance between all three cards at less than $900. This is important because it isn't enough to carry a small balance on only one card if your other cards still add up to more than the 30% benchmark. Instead, pay down all cards so that your total balance is lower, and you will begin to see a few points each month added to your credit score. 

Avoid Multiple Credit Inquiries

Although it is important to shop around for credit, especially a mortgage, too many credit inquiries can damage your score. However, not all inquiries are as damaging as others. Each time a lender checks your credit, it can lower your credit score by as much as five points. Although that doesn’t sound like much, if you apply for credit through ten different lenders, you may see a 50 point drop in your score. The good news is that checking your own score does not damage your credit. In addition, if you are applying for an auto or mortgage loan, there may not be a significant drop in credit even if you apply to several different lenders. The reason for this is that credit agencies often look at mortgage or auto loan inquiries as one as long as they fall within a shopping period. In other words, if you have five or six inquiries from mortgage lenders within 45 days, they are all counted as just one inquiry. In some cases, the lender may completely ignore inquiries made in the 30 days prior to the day the score was computed. This allows you to shop around for the best interest rates available. However, keep in mind that the inquiries must be fairly close together in order for the lender to consider them all one inquiry. It is also important to remember that inquiries made by finance companies or credit card issuers are not lumped together as one inquiry, so avoid applying for new credit accounts while seeking a mortgage loan.

Ultimately the best solution to improving your credit score long term is to pay down the balances on your revolving accounts until they fall below 30% of your total available balance. Since this part of your score is based on the cumulative total of all revolving accounts instead of each one individually, it would be wise to pay down the accounts with the highest interest rates first, and focus on the others after you have reached the 30% goal. This will give you the best monthly savings as well as the best chance of improving your score a few points at a time each month. At Southern Trust Mortgage, our goal is to get you into the home of your dreams. To do that, our expert staff is here to help guide you through your credit issues and provide you with the best advice possible to get your score where it needs to be. Contact us today online, by phone at 240-695-2907 or via email. We are here to help you achieve your home ownership dreams.

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VA Mortgages and Chapter 13 Bankruptcy

After filing bankruptcy, the biggest question most people have is when they will get back on their feet financially. Veterans particularly want to move forward with their lives, possibly purchase a new home and begin the fresh start that bankruptcy provides them. The fact is, VA loans, including mortgages, are more forgiving than conventional loans when it comes to certain types of bankruptcy, especially a Chapter 13 filing in which a repayment plan is developed so that all or a portion of debts are repaid over a three to five year period.

Borrowers who have filed Chapter 13 bankruptcy must wait two years from Discharge date or 4 years of Dismissal date, to apply for a conventional mortgage. However, if a veteran qualifies under a Certificate of Eligibility, they may apply for a VA mortgage after making 12 months consecutive, on-time payments under Chapter 13 bankruptcy plan. The underwriter would require confirmation, in writing, that all Chapter 13 payments were made as agreed. In addition, the underwriter would require that the borrower obtain bankruptcy Trustee approval to obtain new credit, which in this case would be a mortgage.

 Longer Process

One drawback to the process is that obtaining the approval of the Chapter 13 bankruptcy Trustee can take up to 30 days as it requires court documents to be filed. Some purchasers may be concerned that the delay could cause a seller to be less likely to enter into a contract with them. The fact is that underwriters can require any number of conditions in order to approve a mortgage loan, including repayment of collections. Underwriting conditions are a common practice in the mortgage industry, and VA mortgages are no exception. In these matters, a seller will not be told that the borrower is purchasing the property while in Chapter 13 bankruptcy unless the representing REALTOR® places a third party contingency on the buyer’s offer and VA mortgage approval depends on confirmation from the Bankruptcy Trustee that the borrower can take on more debt.

Long-term Savings

In today’s real estate market, purchasing a home is often far less expensive than leasing. In many cases, landlords purchased properties when interest rates were between 6 and 7.5 percent, so that rents reflect those interest rates. Today, the average interest rate for a 30-year fixed rate mortgage is just over 4 percent. This means that payment for a mortgage is often much less than the cost to rent. Because the borrower will actually be paying less, the Bankruptcy Trustee is more likely to approve a VA mortgage as it could save the borrower money. This is another reason that VA mortgages and Chapter 13 bankruptcy, as long as the borrower is making consecutive, on-time payments, is actually beneficial to both the borrower and the lender.

If you are eligible for VA benefits, you may be able to qualify for a VA mortgage even while in repayment of a Chapter 13 bankruptcy. If you have been making consecutive 12 months, on-time payments on your bankruptcy plan, contact Seanna Smallwood, Loan Officer [NMLS 1252825] at Southern Trust Mortgage to learn more about VA mortgages and Chapter 13 bankruptcy. Visit her online, by email or give her a call at 240-695-2907. You could be on the way to homeownership more quickly than you thought.

Click here to watch the video: http://southernmarylandlaw.com/news-and-views/va-loans-bankrupcty/

 Southern Trust Mortgage, LLC, is proud to be an Equal Housing Lender – NMLS 2921.