Wednesday, May 27, 2009

Credit Score Minimums are Raised

GMAC just raised their minimum credit score for FHA loans to 600. They were the last holdout at 580. Most lenders have been at 620 for months.

This means that credit scores are more important than ever, but what can you do if your buyers have scores below 600? Here are the two most important things you can do to raise your credit score, and the three most important things that you should NOT do.

Things to do:
-- Pay your bills on time.
o Every time you pay a bill 30 days late, it lowers your score. The more recent the late payment is, the more that late payment lowers your score.
-- Keep balances low on credit cards and other revolving credit accounts.
o If your balance is more than 70% of the credit limit, it lowers your score the most.
o If your balance is 50% - 70% of your credit limit, it lowers your score a bit less.
o If your balance is 30% - 50% of your credit limit, it lowers your score even less.
o If your balance is below 30% of your credit limit, it will improve your score.

Things NOT to do:
-- Do not close old accounts.
o The longer your accounts are open, the higher your score will be.
-- Do not pay off old collection accounts.
o If you pay off an old collection account, the "date of last activity" will be the current date, and your score will go down.
-- NEVER pay anyone to “repair” your credit or to remove old derogatory information from your credit report.
o This is a rip-off -- 100% of the time! You can fix errors on your report by yourself – for free.

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