Keep your credit in check to stay in the housing market
Vicky Katz Whitaker
Creators News Service
Whether you plan to buy or rent, a wallet full of credit cards, high balances or even a single late payment may be enough to bounce you from today's housing marketplace, experts say. What's more, there are no quick fixes to repair it.
"The only way to improve your credit report, and therefore your credit scores, is to change the way you manage your credit over a period of time," said Rod Griffin, Experian's public education manager. "Credit scores don't just look at whether or not your payments are current at this moment in time. They consider your payment history over long periods. The key to good credit scores is to demonstrate a consistent habit of good credit management."
Experian, TransUnion and Equifax, the three leading global credit reporting agencies, provide mortgage lenders and landlords with an applicant's FICO score -- a complex mathematical formula developed by the Fair Isaac Corporation, which condenses credit history and estimates reliability. In the United States, scores can range from 300 to 850. They go up to 900 in Canada, reflecting the traditionally more fiscally conservative borrowers and lenders there. The higher the FICO number, the better your rating.
"Many lenders and other businesses are not willing to accept as much risk as they once were, which means they may now require a better credit score than they did in the past," said Griffin. "That means a person must have a stronger credit history in order to qualify for a mortgage loan or to be approved for a rental agreement or other types of credit."
It's a view shared by Steven R. Katz, the director of consumer education for TransUnion's truecredit.com. "The requirements have absolutely risen over the past year," he said. While every lender makes its own decision as to what score is required, there is a "general preference for a score somewhere in the range of 720 and 750 to gain access to beneficial [mortgage] rates."
Ethan Ewing, president of bills.com, has found "alternative" loans that existed a year or two ago are no longer available today. "Those include many interest-only and adjustable-rate loans. It is more important than ever to have a good credit score to obtain a loan... and a good rate on that loan," he said.
While tenant screening may also include a criminal background check and a review of public records, a rental property manager will also look at the same information as a mortgage lender, said Griffin. These factors will determine your ability to make the monthly payment, especially if you're having trouble keeping up with your bills. And, he added, even if you are managing to keep current, the manager will evaluate everything you owe against your ability to pay.
Industry experts recommend checking your score before applying for that mortgage or starting an apartment hunt. The U.S. Fair Credit Reporting Act requires Equifax, Experian and TransUnion to provide you with a free copy of your credit report once a year at your request. You can apply online at annualcreditreport.com, by phone or by mail. The U.S. Federal Trade Commission's brochure "Your Access to Free Credit Reports," available on their website, explains your rights, including how to get any errors corrected.
If your FICO is low, give yourself time to improve it, advised Katz. "Consumers really need to give themselves several months to see an improvement in their score based upon a positive change in their own credit habits."
That includes paying all bills on time every month without exception. "Failure to do so will negatively impact on their credit history and late payments will remain on their credit reports for a period of seven years," he added. In fact, paying bills on time for as little as one month can raise a modest credit score by 20 points, Ewing concurred.
If you're hoping to buy or rent, you should slash those high card balances and avoid applying for new cards. "Applying for lots of credit over a short period of time makes you look credit-hungry," warned Katz.