Refinancing? Quick Credit Fixes

If it’s true that when it rains, it pours, homeowners are getting more than their fair share of inclement weather. There’s a new gloomy forecast – mortgage lenders are raising the bar on their standards. Again.

Several banks, including Wells Fargo and Bank of America, two of the largest mortgage lenders, have recently raised the minimum credit score requirement on FHA-loans by 20 points, to 640. According to Bloomberg News, that will be yet another hardship for the 6.3 million Americans whose scores fall into the 620 to 639 range and want a new mortgage, or to refinance an old one.

This move puts the kibosh on the ability of many consumers to take advantage of historically low interest rates to either purchase a new home in this depressed market, or refinance into a new mortgage loan with lower monthly payments. This especially hurts minority borrowers, who have been hardest hit by the economic meltdown.

Fixing your credit score

Those 20 points are not necessarily a huge gap to fill. Here are some ideas to help you boost your credit score in the short-term, while you’re focusing on becoming more financially stable in the long-term.

     1. Give older cards a wake-up call. Credit companies like to see that you’ve had credit cards for a long time, and have been able not to abuse them. If you have some oldies but goodies that you haven’t used for a while, put them into action. Your older-card issuers may have stopped updating your file, and this move will send them back into action.

     2. Give your plastic a rest. If you’re trying to improve your score, put a hold on purchasing expensive items. Put small items on the older cards (see #1 above), and use cash if you want a big-ticket item. If you don’t have the cash to afford it, don’t buy it until you do. If you must buy it, then you may have to give up your desire to take on a new mortgage.

     3. Fight the most important errors. Since you want a quick fix, it doesn’t pay to sweat the small stuff. Certain errors are more significant than others, and those are the ones you’ll want to take immediate action on. Be aggressive about fixing errors in the reporting of late payments or charge-offs, or any account that’s not listed as “current” or “paid as agreed” if you indeed paid in full and in a timely manner.

     4. Pay down balances. If you can pay down your balances in a significant way over the course of two months, it could have a significant positive effect on your credit score. In the scheme of a lifetime, that’s a rather short period in which to make a difference.

It may be a while before the sun fully shines on the mortgage market. If you’re in the market for a home loan, and your credit scores are on the border, take action now in order to allow the skies to clear on a new mortgage loan.