Pimpin’ Your Credit Score

Buying a house is probably the biggest debt you will ever incur.  The lifetime cost of your mortgage greatly depends on your credit score because that determines the interest rate .   You should check your credit reports about 6 months before applying for a mortgage.  This allows enough time to correct any significant errors. 

The three credit bureaus are Equifax, Experian and TransUnion.  Each issues their own score but in general,  you want a FICO score of 720 or higher to get the best interest rate.  And since many lenders use the middle figure from the three bureaus as the “correct” score for their funding decisions, it’s important to review all three reports. 

Credit report mistakes are either harmless and harmful to your credit score.   Don’t bother correcting the harmless errors like:

  • Incorrect current or past home addresses
  • Previous employer listed as the current one
  • Misspellings of your name
  • Closed accounts showing as “open” 
  • Accounts closed at your initiative that do not say “closed by consumer.”  

So what is worth your time?  Fixing the harmful errors that lower your credit score such as:

  • Credit limits on any accounts being reported as lower than they actually are.
  • Accounts noted with any status other than “current” or “paid as agreed” when you paid on time and in full.
  • Late payments, collections or other negative items that aren’t yours.
  • Accounts listed as “unpaid” that were discharged in a bankruptcy.

 

Errors aside, what else can you do to help keep your score high?  Don’t close any accounts and don’t apply for new credit.  Pay your bills on time.  Pay down your debt.  If an existing creditor offers to increase your credit limit, accept the higher limit but only if you won’t use it.  You want a mortgage lender to see that your current debt is a small percentage of your total credit available.

Then when you are ready to apply for a mortgage, do your loan shopping within 45 days.  The FICO formula will treat all mortgage-related hits within that period  as one inquiry.  That means your score won’t be lowered due to the multiple inquiries, even though normally that happens.

And by the way, obtaining a copy of your own report doesn’t impact your credit score.  But think twice before patronizing those companies that push credit monitoring subscriptions in exchange for the “free” report.  The truly-free annual reports from the three credit bureaus can only be accessed through annualcreditreport.com.

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