If you are thinking about purchasing a home or refinancing your existing home, your credit scores needs to be your number one priority right now. Given the uneasiness of today’s financial climate and the continuous volatility of the stock market, credit score requirements are increasing exponentially.
While the entities that back most loans (Fannie, Freddie, FHA) haven’t changed their scoring standards, some servicers have. One major servicer announced last month that they were raising their minimum credit score requirement to 700 (as opposed to 620) and were moving their minimum down payment to 20% as opposed to 3.5%. Others have raised their minimum score requirements to 660 or 680. And even some who service FHA loans which normally requires a 580 minimum score have raised their standards to 620 and even 640. Some have stopped offering FHA all together for the time being. This will make it particularly difficult for many first time homebuyers, which is a huge part of the FHA market.
Having and maintaining a good credit score has always been important but now, with all the changes happening almost daily and so many lenders having higher scoring criteria, it is more important than ever.
First things first. Check your credit reports! This is important, not so much from a score standpoint, but to make sure everything is accurate. Unscrupulous people are taking advantage of COVID-19 and there has been an increase in dozens of scams aimed at taking your personal information, credit card information and money. These range from fake websites, emails disguised as government agencies to fake job postings. Through April 2021, a consumer can now access their personal credit report for free weekly instead of once every twelve months. You can do this at www.annualcreditreport.com. Once you are certain everything looks right on the credit report, it is time to focus on improving the scores:
- Check your revolving balances. Do not worry about installment balances. Focus on the credit cards. It is important to try to keep them under 10% of the high credit. Under 20% is ok but 10 is better. If you don’t have the money to pay cards down, call the creditors and see if they will raise the credit limits. Most credit card companies will agree to this once a year as long as payments have been made on time.
- Check late payments. If you have any late payments in the last 12 months, call the creditor and see if they will do a “one time courtesy removal” of the late. Some credit cards even have a disclaimer in the fine print of the “terms and services” that states they will agree to do this once a year.
- Collections. If you have any collections, call the collection agency and see if they will do a ‘pay for delete.’ There is a better chance of this being granted if it is for a medical debt. The collection agency does not have to do this but it certainly cannot hurt to ask.
- Do not make changes. Don’t open any new accounts. Don’t close old accounts and limit your card usage.
Follow these steps, be diligent and stay on top of your credit profiles. If you are looking to make that house purchase, credit scores are now more important than ever.