Why do I have a low credit score?
First of all, many potential home buyers find themselves with low credit scores. Unfortunately, it can be overwhelming to some to begin working on improving their score. The first place to start is to know exactly where you stand. You need to have a complete credit report. One that shows records from all 3 credit reporting bureaus. These are Transunion, Experian, and Equifax. Many companies offer these services online for free. If you are shopping for a mortgage, Northeast Financial is more than happy to offer a free credit report consultation to help you begin the process of rebuilding your credit score.
Once you have your report you can begin the process of raising your score. Typically, what causes lower scores are the following:
- Bankruptcies
- Foreclosures
- Late Payments
- Collection Accounts
- Charge Offs
- High Balances
Bankruptcy
With a bankruptcy you first want to make sure all your items that were included in your bankruptcy are reflected correctly on your report. If you see any discrepancies you would want to contact the credit reporting agency and make sure they make the proper changes. As a result, this can help you raise your score.
Foreclosure
If you had a foreclosure you would want to make sure the dates are correct. Again, this can be done by checking the credit report and making sure they match up with what you may have for paperwork.
Late Payments
To begin with, Late payments are similar to a foreclosure. So, you will want to make sure the information reported is correct. If you see something incorrect you will want to let the company reporting it know that you are disputing the information on your credit report. For example, you have a department store card and they are saying you had a 30-day late payment in the last 12 months and you knew this to be incorrect you would want to contact the company and file a dispute. After you would want to take the additional step of making sure they contact the credit reporting agencies and update with the correct information.
Collections
Collection accounts and charges offs are accounts that went past due and are usually placed for collection with a collection agency. These accounts are typically sold to a collection agency for pennies on the dollar. Most collection companies will take less than a full amount and consider the debt paid. An example of this is if a person owes $1000 on a collection account the company may take $300-$400 and consider the debt satisfied. We always recommend before you send any money you get in writing from the collection company the account will be paid in full and they will report this to the 3 credit agencies.
High Balances
Lastly, if you have the money then you should pay down the balances. You do not need to pay the account off. It is helpful to have a history of paying accounts on time. You should pay your accounts down to 30-40% of their credit limit. This typically will have a very positive result in raising a score.
Mortgage Option
In closing, if you have had credit issues, or a foreclosure, or a bankruptcy due to a loss of income from a job loss and/or medical issue you may qualify for an FHA program called “Extenuating Circumstances.” If you have any questions or would like help in improving a low credit score for your upcoming Connecticut Home Purchase – I can be reached at 860-334-1354.
Thank you,
Craig Thibeau
NMLS#: 398576 Company NMLS#: 117273
210 South Main St. Middletown, CT
Cell: 860-334-1354
Office: 860-788-7237
Craig@northeast-mortgage.com
