Keeping it Real: Position your credit to refinance, buy a home
by Carla Carroll
Jul 26, 2013 | 3347 views | 2 2 comments | 123 123 recommendations | email to a friend | print

Motivated by recent increases in property values, some borrowers are refinancing and may even be getting some cash out again. There are also buyers seeking to find new homes. The market is becoming more active, and that’s good news.

Though some are eager to move forward, the shaky housing market of recent years and the general state of the economy have left many with credit issues that need to be addressed.

Credit issues plague many homeowners and aspiring homeowners of all income levels, from low to high. Some may also be re-entering the home purchase market.

Benefits of resolving troubled credit

In many cases, credit is the difference between getting a lower interest rate or payment and having to wait — or not obtaining a loan at all.

Many who would love to buy now have low Fico scores or pesky collections, charge-offs or public records that hinder their progress.

Most banks want to see at least a 620-640 middle Fico score.

A Fico score, which ranges from 300 to 850, is the standard credit score in the United States, based on information from all three credit bureaus.

A 680 score is decent, above 720 is good and higher than 750 is excellent.

Fix credit inaccuracies

Bear in mind that there may be some inaccuracies in your credit report. Pull your free report with

Challenge what’s wrong by calling the phone numbers associated with the accounts or the credit company — or, if you’re in the midst of working with a loan officer, the officer will likely guide you with this process. A quarter of customers have some erroneous data on their credit report.

You may be able to pay down some balances to 30 percent of the limit, or pay them off completely.

But if you want to buy a home, avoid closing accounts. You generally need to have at least three trade lines. Banks want to see active trade lines that you’re paying monthly and on time — but not with high balances.

If you negotiate with your creditors, they may allow you to pay a lower amount than you owe, just to settle the account. Be aware, though, that this will likely reflect negatively on your credit — for example, "Borrower settled for less than the amount owed."

A better negotiation would be to ask whether the account, if it is paid partially or in full, can be removed from the credit report.

Deal with larger issues

Would-be home buyers must wait a minimum of three years after a foreclosure or short sale and one to two years after a bankruptcy, depending on the type and the circumstances.

You’ll probably be asked for all pertaining documentation, so keep that file handy.

Other relevant public records include tax liens and judgments that will likely need to be paid off. A tax lien may have an associated payment plan that a loan underwriter may accept.

Once you enter into the home-buying or refinancing conversation with a loan officer, if your Fico scores are too low or credit issues too great, you can devise a plan to move to where you need to be by paying off debt and so on.

Having no late payments in the past 12 months is essential to your Fico.

If you’re close to the Fico you need, Rapid Rescore may be an option. This allows documentation to be submitted for an accelerated Fico boost, credit correction or update. This can be costly, however.

Simple tips to boost Fico scores

In summary, keep balances at 30 percent of the loan limit or less.

Don’t have any late payments within 12 months — especially no mortgage lates.

Don’t have too many inquiries, meaning having your credit report pulled excessively.

When you’re shopping for a mortgage loan, a few pulls within a 60-day period shouldn’t hurt your score, unless you you’re checking credit for multiple other purposes.

Address collections, and negotiate to have them removed from your credit report, if possible.

Have some credit, keep it active and pay it on time.

These things will save you money and may help you finance a wonderful new home.

Carla Carroll is a senior loan officer at Diversified Capital Funding in Tracy. She can be reached at 914-3753 or

Comments-icon Post a Comment
July 27, 2013
Monsterdad is correct in most areas. This article is basically an advertisement for a loan officer. Nice to have friends that buy ink by the barrel.As of 10/17/2005 the way we do credit changed.

The market on homes has gone up, then, it stopped. Reason for this article. i have over 25 years in financial. I can see the level of experience of the agent in this article. This is a sales pitch.

Those free credit reports are never complete and, you just set yourself up for ID theft and a blamk load of marketing calls.
July 26, 2013
Financial advice from someone who's job is to put you into debt. Like we poor schmucks didn't learn anything the past several years, in particular don't trust mortgage lenders and banks. What she is saying isn't really true, I am debt free except my home and I just got a refi once the value came back up and I'm no longer underwater. I certainly didn't need 3 credit lines to get it cause I'm done with credit cards and car loans. No ripoff mortgage products this time around, it's a straight up refi with no bullshit attached. Cut your lifestyle and pile up some cash so you don't have to worry next time the bottom falls out on the economy. I imagine a lot of people are going to be selling in the coming year to bail on this nowhere town. Get ready for the influx of home sales yet to come. I'm sure most of you will continue to worship at the altar of the FICO score and live your lives making payments on everything. I'll take the debt free lifestyle any day.

One other thing, check your title to make sure there are no paid or unpaid liens against it. Mine had a $3K lien from 2007 that was paid but the court docs were never filed allowing it to be removed. It can hold up your new loan.

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