How to Improve Your Credit Score and Get the Best Mortgage Rates

As part of your Colorado Springs home buying process, you will mostly likely be applying for a mortgage. And one of the most important components lenders will consider is your FICO credit score. There are many factors that contribute to that score—some of them seemingly counterintuitive. For example, when you open a new account, your score is negatively affected—the same thing also happens when you close an existing, but non-used account. Also, when you apply for credit and the company searches your report, you are negatively affected as well.

So, if you’re thinking of buying a home in the Colorado Springs area, do you need to worry that your credit score will suffer when a mortgage lender pulls up your credit report? The answer, fortunately, is no.

When the mortgage lender pulls your first credit report, there is a 45-day window in which other people can search your report without hurting your score. This is called a “soft pull.” If, however, you apply for 3 credit cards in one month, you will experience 3 “hard pulls” which will cause major “dings” in your report.

However, you can take steps to improve your score. Here are some tips to help you make sure that your credit report is in the best possible condition before you start your home search:

  • Don’t co-sign loans. If your co-signer defaults, you will be responsible for the payments. If you can’t pay, your credit report will show you to be in default.
  • Keep old revolving accounts open, even if you have paid them off or no longer use them.
  • Avoid “same as cash” credit offers (often available at appliance and big box stores). These offers usually give you a credit limit for the amount of purchase, so you will immediately max it out. You will be “dinged” when the store does the credit search and then again when you close the account after payoff.
  • Keep your credit card balances at a maximum of 30% of the total allotted credit.
  • Don’t open new accounts or make large purchases in the six months before you plan to apply for a mortgage, unless absolutely necessary.
  • Monitor your credit report frequently at www.annualcreditreport.com to check for errors.
  • Pay your bills on time. Even one late charge or missed payment can negatively affect your score.
  • If you have not previously established any credit, sign up for a secured credit card. You will prepay a set amount and then receive a card with a spending limit of that same amount—you can then use the card as you would a regular credit card.

Coming Soon: How to deal with credit disputes, bankruptcy, short sale vs. foreclosure and loan modification.

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Keep Your Eyes Open During the Final Walk-Through

You’ve found your dream home…the offer was accepted…the loan is secured…your inspector has given the thumbs up…and you’re about to sign the closing papers. There’s one more important step I urge you not to overlook before you receive the keys: the final walk-through. This should be done the day before, or even the day of, your closing.

The final walk-through is a critical part of the home buying process. You and your agent will visit the property to make sure that the home is in good condition and that you are getting everything that was written into the sales agreement. This generally includes all window coverings, attached light fixtures (e.g. chandeliers, track lighting), appliances, area rugs/carpets and spas/pools, unless otherwise indicated in the agreement. You’ll also want to ensure that any previously agreed-upon repairs have been completed.

Make sure that the home is clean, the cabinets and garage have been emptied, the toilets, sinks, dishwashers and laundry machines are functional, the heat and air conditioning work and that all trash has been removed. Turn on all the light switches and test the outlets. Other potential surprises include large carpet stains that were hidden by furniture, large wall cracks that were camouflaged under paintings or mirrors, or water stains from leaks that have developed since you last saw the property. If you discover any of these conditions, you have the option of asking the owner to repair them before closing or to provide financial concessions on the selling price. Once you have closed, the sellers are no longer obligated to make any repairs.

If I still haven’t convinced you of the importance of the walk-through, here’s a cautionary tale that we personally experienced. The buyer and agent did a walk-through on a home that was built in 2005. They thought they had done a completely thorough inspection and everything appeared to be in working order, so they proceeded to closing.

A few weeks later, the buyer called our company and said that the furnace did not look like it belonged in the house. Sure enough, upon inspection, the furnace was a beat up, rusty model from the 1970s—the owners had swapped out the new furnace after the inspection and replaced it with an old one! You can be sure that from that point on, we included the furnace in our walk-throughs and advise you to do the same.

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