As you prepare to apply for a mortgage understand that you should have your best possible credit profile BEFORE applying. Working to improve your score during the mortgage process can be done, but there are two problems. One, time to clear up items can become an obstacle when compared the time you are anticipating a closing. And two, lower scores upfront can give an underwriter an additional reason to be uncomfortable with a file. Take care of looking into your credit scaore sooner than later. Here are some tested ways to do it:
Credit Cards – Revolving Debt proportions
Look on the credit report for revolving debt (not installment loans, or “open” accounts). As a general rule of thumb, the balance should be no more than 30% of the credit limit. So, if it’s more than that, have you should make every attempt to pay it down.
If there are many revolving accounts with high balances, you will most probably need to pay down most or all of them for the best score.
If there is nothing derogatory on the credit report, just high balances on revolving debt, you can often improve the score significantly. But, if there are many derogatory items on the credit report, paying down revolving debt may not help the score very much.
Many lenders have software programs that can quickly determine which (if any) revolving accounts need to be paid down, and to what balance.
Paying off or satisfying such a derogatory account does not normally improve the score because the derogatory account still exists, and so still hurts the score. In fact, paying off an old collection may even make the score drop.
However, for collections, the borrower can ask for the account to be completely removed or deleted. If you have not yet paid the collection, you can use that as a bargaining chip.
If there are many collection accounts, removing just 1 or 2 may not do much good. Always look at the overall picture.
Your lender likely has a What-if Simulator to experimentally see what affect removing an account has on the score.
When you look at the overall credit report and you see a lot of late dates, especially ones from within the last year, there is not much you can do to help the score, they just need to drift into the past.
However, if you just see one recent late date on one account, and just one other recent late date on another account, you should call those creditors and ask for those single late dates to be removed as a courtesy. It may also be that the late dates were a mistake, but don’t assume that. Just ask them to remove it as a courtesy since you have an otherwise perfect payment history.
Piggybacking on someone else’s account can help or hurt your score.
If that account has recent late dates, you can most probably improve the score by having the actual account holder remove you as a user.
If the account is a revolving credit card and it is maxed out, you might also improve the score by removing it, but only if you will still have other revolving credit cards on your report.
What about adding someone as an authorized user to a credit card? This may help, but the better course of action is to get the actual card holder to make it a joint account with you. This guarantees that the account will show up on the credit report within a month or two. But be careful…the account should have a lot of history, no late dates, high credit limit, and low balance.
Other Things to Help
Keep old revolving credit cards open, even if you haven’t used them in a long time.
Regularly check your credit report to catch errors early. You get a free one each year from each bureau. Don’t do all 3 bureaus at the same time, space it out throughout the year.
This advice may have answered many of your questions, however, it may not have touched on your particular situation, which is why you should contact a Loan Officer as soon as possible to get your questions answered.