If you are in the market to buy or refinance a home, having a good credit rating is more important now than ever before. Both conventional and FHA loans now use credit based scoring (where better credit scores get better rates) or credit floors (below which your loan is automatically rejected). This means a few points difference in a score can mean a difference of thousands of dollars over the years you hold onto the mortgage, or if you are even able to get the house at all. Credit scores are crucial to the loan process, but the truth is that the whole system is flawed. There are hundreds of factors which go into each credit score and credit scores change constantly. Like taking a snapshot, your credit score measures only what is happening in that moment in time. Some of the scoring items are contradictory and some are entirely illogical. You could have a perfect credit rating and never paid a bill late and still have a sub par score. Little changes can make a big difference in your scores, and with so much riding on them you need to do what you can to present your credit profile in a way that presents you in the best light. If you have time there are a lot of things you can do to improve your credit scores, but if you are on the borderline and pressed for time, there are still ways to get your credit scores up.

For a full run down on how credit works and what you can do to raise your scores, read my 4 part series:

Part 1 -How credit works

Part 2 – Fico scores and how they are figured

Part 3 – 10 Ways to raise your FICO scores

Part 4 – Fixing mistakes and credit repair

This series is a great primer on what will work to make the most of your credit scores, but this is general advice, not specific to your personal situation. If you are in the market for a home and need to get your score up 20 points in order to qualify (minimum 600 score for FHA) or to avoid paying extra (below 740 on a conventional loan) you want something that will make the difference now. One way to do this is by using a “What if?” credit simulator. This is a tool we have available through one of our credit companies. When we pull a credit report the report will tell us not only what the scores are now, but what the range can be in potential improvements. Then we can use the “What if?” simulator to try out different changes to see what will make the most positive impact in your score. Maybe paying down a credit card, or switching a balance to another lender will help. It could be a matter of adding a balance to a card you haven’t used in a while or fixing a mistake on your report. Little changes can make a big difference, and this tool takes the guess work out of the credit equation.

There are two ways we can use this tool. First, if you haven’t found a home yet, we do this as part of the pre-approval and this tells you what you need to do while you still have time to do it. It takes about a month for the credit companies to report. If you have the time make the changes now and your scores will be up when you are ready to apply for the loan. The second way to use this is if you are already at the point where you need the loan and don’t have time to wait. In this case you can do a rapid re-score and we can update the credit on the items you changed manually. This is more expensive as the credit company charges for every credit line that is updated, but paying a little more up-front can pay off big if you are able to get a better rate. Or an approval you wouldn’t other wise get.

The “What if?” simulator is a great tool, and it does work. But don’t wait till the last minute to run your credit, get pre-approved before you start looking for a home. If you want to see what can be done to make the most of your credit, give me a call or click here for a pre-approval. I’d love to help.

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