Articles / cobweb credit
Getting the Cobwebs Out
by Mj Gladding 10.19.06Most people clean a house before they move into it. In that same vein, you
should clean up your credit history before you shop for a mortgage loan.
Whether you plan to buy a house or refinance your current home, make sure
your credit report is as clean as possible so you can keep your loan costs
low.
Your credit history will be the single most important
factor
in determining
what kind of mortgage rate you will qualify for…you may not qualify
for a mortgage at all. If your credit is in less-than-stellar shape,
you need to work on cleaning up your record rather than try to fix it. Avoid credit "repair
services” that, for a fee, promise quick fixes
to credit problems. They do not work.
Instead, if you have black marks on your credit report because you didn't
pay your bills on time, you’re
going to have to suck it up and realize it will not be fixed overnight. Remember
if it sounds too good to be true, it probably is. Only time and good
payment habits can repair the negative things on your credit report. Doing
that takes time, often 18 months to two years. But a bad credit report doesn't
mean you must put your home-buying or refinancing plans on hold. It does
mean that you need to have a good idea of what interest rate your credit
history will entitle you to, how to improve that credit history, and how
to prevent it from worsening again.
1. Make sure all information on your credit
report is accurate.
That is when you might discover some credit problems on your record that
are not of your own making. One growing problem right now is identity theft,
and victims' credit reports are among the first places where its damage shows
up. Credit theft, however, is not the only problem. Please know that the
entries in your credit report are entered by a human. The
three major credit-reporting services handle millions of files and transactions
daily. They make mistakes, but it's up to you to catch those mistakes.
When my husband and I went to buy our first home, we found that he had some
of his father’s
less than stellar credit on his report because my husband is a junior. So
you need to check your credit reports regularly for fraud and errors.
2. If there are mistakes on your credit report - send a letter
You can send a letter to the reporting agencies challenging a black
mark by explaining your side of the story and asking for a correction.
Each agency has its own procedure, and each agency will “suspend” the
negative report while it investigates your request. Each of the agencies
explains its own procedures on its website and in its credit reports. Start
paying your bills on time every month because that gets noted on your report,
too.
3. Credit reports show how well you pay -
not what you make.
While it is important to pay off your debts, it doesn't help to play a game
with debt by switching it from one credit card to another. Credit card companies
try and tease you into this by offering you 0% on balance transfers. Too
much of a good thing will be noted negatively on your credit report. You
might be better off keeping just one credit card, since that will help you
understand how much debt you really have and how much it is costing you each
month in interest.
4. Go through your credit report “play
by play” with your bank.
Don’t just go to a website because
they are offering you a free credit report. Lots of times they won’t even give you a score. Go
to your bank. My bank even had a promotion this past year that offered
their clients $5 to run their credit because they wanted to ensure that there
was no identity theft happening. Credit reports are not a quick and
easy read. You need someone to go through it with you to get to that
next step.
5. Easy credit history cleanup.
Even if you wind up paying a little more now for a mortgage interest
rate because you have an “iffy” credit record, you can always
refinance when your credit history is in better shape. This can be difficult
and will require willpower on your part. Reduce both
the number of credit cards you own and the amount you owe. Pay your bills
on time and don't spend more money than you make!
