Wednesday, June 1st, 2016
A borrower with a high salary and lots of assets doesn’t always get the lowest rate. Well-heeled borrowers may think their credit scores will be high as long as they pay off high balances in full every month, but credit agencies are also judging whether users are able to manage credit in a way that won’t result in becoming overwhelmed.
It doesn’t matter how much money you have, it really is about how you manage your credit. For the best score, people should limit usage to less than 25% of each entire credit line.
Shared credit obligations commonly trip up higher income borrowers. An example is a spouse who has credit issues that go unconfessed, emerging when a loan application is filled out. Unpaid parking tickets are another common surprise. In the case of unpaid bills, the problem can usually be solved by simply paying the bill and then using “rapid re-score” services, which can be as fast as a few days. Lenders have to request the re-score, which typically costs $30 per updated account.
Borrowers that can pay off their balances in full each month may benefit from new credit-reporting rules that take effect soon. Fannie Mae, a government-sponsored entity that buys loans from lenders and sells them as mortgage-backed securities, has added “trended credit-data reports” to the latest update of its automated underwriting system to be released June 25.
Current credit reports only state the outstanding balance of accounts, such as credit cards, mortgages and student loans, as well as whether a borrower has made payments on time or late. Credit reports that use trended data don’t change the scoring method, but they give the lender more information, including the scheduled payment and the actual payment amounts over time to let lenders better judge how borrowers use cards, such as paying off balances in full monthly or making just minimum payments.
Here are a few more tips for tracking and repairing credit scores:
• Review regularly. The best way to avoid a negative score surprise is to monitor scores regularly. Under federal law, consumers can get a free credit report from all three agencies, Experian, Equifax and TransUnion at no charge once a year from www.AnnualCreditReport.com.
• Steady as she goes. Don’t make any drastic changes that could lower your credit score, such as opening or closing a credit card or taking out a car loan, just before or during the mortgage-approval process.
• Grin and bear the cost. For borrowers who need to buy now and can’t repair their scores in time, so-called ‘Non-QM’ lenders will go as low as 620 credit scores for nonqualified mortgages that don’t have to follow federal rules. Expect to pay as much as 3% more in annual interest rates, but after credit is repaired, borrowers can refinance to get market rates.