EDITORS NOTE: What is considered a “good score” has changed quite a bit since the subprime era.
In Part 1 of the Subprime Series, you should have found your Note and contacted your Mortgage Planner. The next step is to review your credit report. I suggest having your Mortgage Planner pull a tri-merge report. They may or may not charge a fee for the cost of the report (around $20).
Whats your mid-score? Just last year, a score of 600 was an easy mortgage transaction (for subprime)…now the bar is raising due to all of the foreclosures. Typically, your “mid score” is going to be how you’re judged by the mortgage companies. With a tri-merge report, you should have 3 scores ranging from 350 – 850. Your mid score is literally the number between the highest and lowest score. 680 and above is considered to be a good credit score. 720 and higher is excellent.
Your credit score is based off of the following:
- 35% Payment History (paying your debts on time).
- 30% Amounts Owed (keeping your balances below 50% of the credit line is good, below 30% is even better).
- 15% Length of Credit History (new credit, like new cars or credit cards hurt your score. Established good credit is great for your score).
- 10% Types of Credit (mortgages help improve your scores, thrifts–hard money lenders, do not).
- 10% New Credit (as I mentioned with length of credit, those new cars or new credit card accounts will lower your credit score).
- Inquires can vary from 2 – 30+ points.
Review the credit report for errors. Credit reporting is far from perfect. There may be items showing on the report as owing that have been paid or that aren’t even yours. If this is the case, determine which bureau is reporting the wrong information and send a letter certified mail to that bureau disputing what is being reported (your Mortgage Planner may be able to assist you with this). Bankruptcy and divorce can make a mess of your credit.
Review your open credit card accounts. How many do you have and actually need? What are the balances shown as compared to the credit limit? If you have accounts that are close to 50% of their limit, work on paying those down to below 50% of the limit first. Work on one card at a time while making your other credit card payments minimum due ON TIME. If you have a credit card close to 30% of it’s limit, you might consider paying that down to under 30% for a credit score boost.
The good news is that credit scores are not permanate, they are intended to be reflective. Working on improving your credit score can take time, which is why it’s important to start now instead of waiting until you need a new mortgage. The approach you take with your credit may depend on how soon you need to refinance (how much time you have). This is why it’s important to have your Mortgage Planner assist you with improving your credit score.
The strategies mentioned in this post are for improving credit scores of subprime borrowers so they can be in a position to refinance out of their subprime mortgage it’s time for them to do so. This may or may not apply to you and you should contact your Mortgage Planner for your personal review.
Before pulling your credit report, you may want to remove yourself from trigger list.
To read Part 1: Should You Be Concerned? click here.
PS: If I can help you with your refinance or purchase mortgage for your home located in Washington state, please contact me! Click here for a free rate quote.