Correction: Insider Q&A-Credit and Real Estate story
In a story
A corrected version of the story is below:
By
AP Personal Finance Writer
It may be winter now, but the spring house-hunting season is just ahead.
Q: Why think about real estate now?
A: Typically the home-buying season starts to heat up in the springtime. That is when people start looking around in earnest. So what we recommend is doing some work upfront to make that process go as smoothly as possible. That involves checking and knowing what your credit standing is and doing work to be preapproved for a loan so you're ready when you find the house you want. It helps you set a budget and know how much house you can afford.
Q: What are the first steps to take?
A: The first thing is to look at your credit report and see what your score is. And maybe people don't know this, but for a real estate transaction a mortgage lender looks at all three credit reports —
So you want to understand what your credit score is and what is impacting that score.
On our side, we recommend things to consumers that they can do to improve that score. Utilization is one thing in particular that comes to mind.
I don't know about you, but I tend to overspend over the holidays. Typically in January I have my lowest credit score of the year because I have the highest utilization on my credit cards. I pay them down and my score tends to improve.
I think we recommend that the optimal utilization should be around 30 percent.
Q: What about just paying your bills on time? I understand that is the biggest driver of your score.
A: That is the single biggest determinant. If you are planning to buy a home, now is not the time to skip a payment. That will have the biggest negative impact on your score. It will do two things: it can drive the interest rate higher or it could, in certain cases, prevent you from getting a loan.
It's very critical for folks to pay their bills on time. And to the extent they can have a derogatory item on their credit (such as a very late payment, bankruptcy, tax lien or other negative item), to address or be aware of that.
Q: How long does it take to improve your score?
A: In some cases it can happen very quickly. The example of if you pay off your credit cards - you'll see it next month. If you have a derogatory item, that can stay on your report for seven years. You just need to set your expectations that you are not going to get the best interest rate. You can take some actions that will change it within a month's time or it can be years.
Q: What should consumers know about efforts to change what the credit bureaus look at?
A: Certainly there is an effort to try to look at more consumer data to score more consumers, including things like payday loans or utility bills or rental payments. This is a trend in the industry that we call "alternative data" to score more consumers. But when you look at the continuum of products out there, the mortgage is the most traditional and resistant to change. The things they will look at are the same as years ago.
Credit score, debt-to-income ratio and the appraisal or value of property — those three are still the standard pillars of the mortgage industry.
Q: What are some common mistakes people make in the mortgage application process?
A: It's usually a gap between what they think they can afford versus what a lender would be willing to give them based on those three items. There can be a disconnect.
People say "Hey I have good credit" and assume they do, then they go to the lender and the lender pulls their file and there's an issue or two on there. It's that gap between expectation and reality for some folks.
Taking the long view over the last twenty years or so though — that gap has narrowed because consumers have so much more access to their credit information than they ever did and tens of millions of consumers are checking their credit more often than ever before.
Q: Some people put a freeze on their account following the
A: From a
Answers are edited for length and clarity.
Squaremouth Introduces Nationwide® as its Newest Travel Insurance Provider
United Kingdom Ceded Reinsurance Market to 2021: Size, Growth and Forecasts – ResearchAndMarkets.com
Advisor News
Annuity News
Health/Employee Benefits News
Life Insurance News