Of the potential borrowers that apply through either of our St. Louis or Kansas City mortgage offices that get turned down, the major reason is due to credit score (minimum required is 640) and the other is due to value.
While there is nothing we can do in the near term about value (from the housing crisis), here are some tips to improve your credit score that can help you in the next 30-180 days.
1. Pay your bills on time. Do not pay them late. Call this the sarcastic “OMG” part of our blog, but this makes up 35% of your credit score. It is important to note, that paying your bills late, also means:
- Paying late, but paying the late fee. You are still marked as paying late.
- No longer paying your car loan because you “gave it back” is still paying your bills late. “That’s not a repossession, we gave it back”, is not a viable argument.
- Allowing a debt to go to collection because you “disagreed” with the charge is still marked as paying late. You need to pay the debt to avoid the late mark then get your money back from the creditor.
2. Keep the Balances on Revolving Accounts Low.
For example, if you have a credit card with a $10,000 limit, and:
- You owe $10,000, that is bad. This means you are maxed out.
- You owe $100, that is Good! This means you have financial room.
- You haven’t used that credit card for a while, don’t close it out. The capacity to have access to credit helps your score.
3. Adding a Spouse as an Authorized User: This works for the situation where one spouse has a higher, qualifying score, but the other does not, but both borrowers income is needed to qualify for the loan.
If your spouse has available credit on their credit cards when you have little credit or little available, then ask to be added as an authorized user. This will help both borrower’s score if you need a few more points.
4. Adding a Secured Credit Card: I’ve mentioned before that credit card utilization accounts for 30% of your score, so if you’re having trouble getting a credit card, then apply for a secured credit card. Discover and Capital One both have secured credit card programs. With a secured credit card, the applicant sends in a deposit as additional security to get the credit card. Keep a low balance-to-credit limit ratio, and this will help you obtain a credit score.
5. Use Department Store Credit Cards as a Last Resort: While they can help, department store credit cards usually keep a low credit limit, consequently, are easy to max out, and can’t be used at a wide variety of stores.
By using a couple of these tips, hopefully that may result in an increase in score just enough to qualify or keep the rate you qualify for as low as possible.