April 10, 2024
FHA home loans have forgiving credit qualifying requirements compared to some conventional mortgages. But even with more lenient qualification standards, FHA borrowers must still financially qualify for a mortgage. This is done (in part) using the borrower’s FICO scores and credit history information.
What can a borrower do to raise FICO scores and improve credit reports before applying for a new home loan?
Research Your Options
If you haven’t worked on your credit for a while, research the industry before you begin.
Credit agencies, including Equifax, Experian, and TransUnion, offer updated consumer credit tools, credit scores, and credit report monitoring services.
Did you know you can sign up for electronic credit alerts, credit report monitoring, and other online services through credit reporting agencies? That’s not all.
Experian is one credit agency offering the ability to “raise your credit scores instantly” (according to the official site) by adding utility bill payments and other “positive” credit activity to your credit report file. These options may assist borrowers concerned about the ability to be approved for a loan.
Prepare For Your Home Loan As Early As You Can
Despite the type of help Experian offers (see above), expect it to take a minimum of 12 months to improve your credit through on-time payments, reduced account balances, and reduced overall monthly debt.
Why the suggested 12-month time frame? Part of the reason is that it takes time for credit improvements to catch up to the borrower’s credit reports. Your credit score changes typically do not happen overnight.
How much will your FICO scores improve by using one credit repair feature such as Experian’s offer mentioned previously? Likely the improvements can help but may not be enough to get you a better mortgage rate without working on other areas of your credit.
Review Your Finances
You need to focus on all monthly financial obligations. This ranges from student loans to revolving credit accounts you may have co-signed on in years past. Co-signing and co-borrowing are important factors when applying for a home loan.
Have you missed payments in the past? Correct that issue as soon as possible. Also key–reviewing your finances to see whether you have overlooked a credit account. Get all your financial data into one place for a top-down review.
Review both how much you owe and what the payoff dates are for each account. Also crucial? The amount of available credit limit for each active account. Reduce your credit balances as much as possible in the 12 months before your home loan application.
The earlier you start and the closer you look at your financials, the better you get the best rates and terms at home loan application time.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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