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Health & Fitness

Extra Credit: Check Your Credit Before You Buy

When it’s time to buy a home, it’s also time to give some attention to your credit score.  Your credit score not only affects whether you are approved for a mortgage, but what interest rate you will receive!  Many people don’t realize that their score directly impacts the rate a lender will quote for the loan.  Not surprisingly, people with higher scores get lower interest rates because the lender does not see them as a risk.  They already have a proven credit history showing them as a safe bet to pay back the loan and thus the lender will extend a lower rate.  People with a troubled credit history of missed payments, high credit card balances, liens, a bankruptcy, etc. pose more of a risk and lenders balance that risk by making money more expensive to borrow.  Lenders justifiably expect higher yields from risky investments.  Bottom line, the better your credit score the lower your mortgage payment will be and the more home you can afford to buy!

You may not think a tiny difference in an interest rate is that big a deal.  However, even a point or percentage of a point could mean tens of thousands of dollars extra paid over the life of the loan.  Thirty years is a long time!  And while fewer homeowners today stay in homes for 30 years, even just a few years worth of paying extra can add up significantly.

We all know that banks have tightened lending standards since the mortgage industry meltdown.  The changes have been significant, “First there is a minimum score that you need to have to even be considered for a mortgage regardless of compensating factors such as your income and your assets. And unless you have top-tier credit, you’re not going to qualify for the best programs, terms and conditions,” says Louis Spagnuolo, vice president of mortgage banking at WCS Lending in Boca Raton, FL.

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What’s most important on your credit report besides the number?  Lenders look at outstanding debt; the outstanding debt relative to the total available debt; the length of the credit history and how many credit inquiries are on your report.

If you are thinking of buying a home, and have any concerns about your score, you should begin to clean up your credit at least a year before you want to purchase.  Go to AnnualCreditReport.com to get your yearly free credit reports from Experian, TransUnion and Equifax.  Get reports from all three as their information can vary wildly.  Federal law allows you to get free credit reports from all three agencies once every year.  Be sure to carefully review every single detail – the way your name is spelled, previous addresses, account numbers, etc.  Be sure every account noted is really yours and is reported correctly.  If necessary, there are many things you can do to improve your score, but they do take time and focus.  Here is a useful article on Bankrate.com outlining 7 Simple Ways to Improve Your Score. A buyer who has taken steps to review and improve his credit will be in a far better position for the long and short term!  Certainly it’s “extra credit” homework that’s well worth doing!

For more information, contact us at www.mendosabalboni.com or 978-341-5400

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