Many people think their credit is worse than it actually is. That is because every once in a while we forget to make a payment on time (or can’t make a payment on time), and we have fairly high balances on our credit cards or other forms of debt. The truth is that these things can damage your credit rating, but being 15 days late on a payment often doesn’t lead to a ‘late payment’ notice going to the credit bureau. And, if the balances on your credit cards fluctuate often, that may not harm your credit rating as much as if your credit cards are constantly within 10% of the maximum limit.
Financial institutions make a profit by charging interest on their money. They want to loan money to people just like you – so they can make a profit. However, they will charge an interest rate risk premium above the Prime Rate depending on the perceived risk that you will make late payments or default on your loan. That is why someone with perfect credit can get a much lower interest rate than someone who frequently pays bills late and has high balances on most of their credit cards. Request a Free Credit Report to see just where you stand.
Providential is expert at helping find the lender who will perceive your credit history and mortgage objectives as the overall lowest risk. This means you save money. When your credit report indicates some blemishes, we can help you adjust those characteristics so you qualify for a lower cost mortgage. Sometimes, this involves canceling credit cards or department store cards, and other times, it involves debt consolidation by obtaining a Home Equity Loan in the short term to pay down debts, and then 6 to 12 months later, refinance your home with a very low rate – when fewer blemishes show up on your credit report.
Most people also don’t realize that every time an authorized entity looks at your credit history, this event is recorded because it suggests that you are about to incur additional credit (debt). If you have many recent inquiries, that can be bad for your credit rating. Therefore, you need to be careful how many places you apply for credit and how many mortgage brokers you work with to obtain financing for your home. As a general rule, you should not apply for any additional credit or make a big purchase during the 3-6 months before buying a new home or refinancing an existing one.
Furthermore, if a creditor is looking for you to collect a legitimate debt, don’t try and hide in order to avoid paying. This situation will only get worse. Try to make arrangements to settle the debt. Most collection agencies will accept a percentage of the debt as final payment. Negotiate a discount or use a Home Equity Loan to obtain funds to pay off debts, but get rid of the ‘collection’ situation on your credit report.
Regardless of your situation, Providential can help you understand your alternatives for obtaining a home loan, and we can assure you that our breadth of relationships with many lenders ensures we can find the lender who perceives your situation as the lowest overall risk, and therefore, you will get the best available rate.