You probably get the pre-approved credit card offers in the mail as you always have, but if you have applied for a car loan or in particular, a mortgage recently, you may have noticed that the standards set by the lenders for the bigger type of loans like a mortgage are getting tighter. Even if you are approved for the mortgage, you may find that you are a bit unenthusiastic about the interest rate that companies that approval.
It should not be a news alert to you that with a high credit score, you can almost always get the best interest rates that a lender will offer. It is all a matter of what kind of credit risk that the lender categorizes you as. A person with a high credit score, such as over 700, would be considered to be a good credit risk and enjoys the low interest rate offered and quick approvals. In fact, with a credit score over 700, such a person would have many more attractive offers to consider for a mortgage. Self-employed people are almost required to have a high credit score because, by the nature of being self-employed, typically they have little documentation to substantiate their income, outside of tax records.
But for the majority of consumers who have average credit scores or sometimes even a classification of bad credit, getting a mortgage is getting to be a tougher process. One of the big problems is that the vast majority of consumers do not know what to do to make their credit look as good as possible to a potential mortgage lender, nor precisely what the lender is looking for outside of the raw credit score calculated by the credit bureaus.
The bottom line is that one's credit score is a number calculated by the credit bureaus which is designed to be a reflection of your historical credit habits. The score is a reflection of whether you pay your bills on time consistently, missed payments, credit charge offs, defaults, bankruptcies, the ratio of your credit limit to the outstanding balance that you carry forward from month to month, and more. It is amazing to think that most people do not even know what their credit score is, which should be something you have on the top of your head, just as easily as your phone number or your social security number.
Another thing that most consumers are not aware of is that they probably have two or even three credit score figures, where each credit score is a different number calculated individually by each of the three major credit bureaus. The reason for this is because very few lenders report to all three credit bureaus – most only report to one of them. In that sense, you can begin to realize the fact that there is not one of the credit bureaus that has a totally accurate picture of what your credit score should really be.
If you are planning a major financial purchase like a car loan or a mortgage, you need to do a credit makeover before you start shopping for a loan. By the time you apply for a loan, your credit makeover tasks should already have been done so that your credit score looks as positive as possible to the potential lender.
You can get a free copy of your credit report from each of the major credit bureaus at our web site, and should do this as soon as possible. When you receive it, go over it meticulously and thoroughly. Studies indicate that the majority of consumer credit reports contain errors, and the only way these errors will be corrected is if you bring them to the attention of the credit bureaus. An old loan that has been paid off may still be listed as outstanding, you may have someone else's credit records mixed with yours, and a whole host of other such errors, all of which have the net effect of lowering your credit score.
Distribute your balances to try to keep your outstanding balance per credit card to less than 30% of your credit limit. If a credit limit is not being reported, talk to that creditor about including that information, since if no credit limit is reported, the credit bureau may assume that particular card is maxed out and rate you accordingly. Above all, make sure you make all your payments on time!
There are many things you can do, but being proactive about it can save you a ton of time and money instead of not doing anything about it until you need that higher credit score. Get started today so that you are ready when you need to make that next big ticket purchase!