Lillian Montalto Explains Why Your Credit Rating Matters

ANDOVER, Mass. - Sept. 19, 2014 - PRLog -- By Lillian Montalto, Broker and Owner, Lillian Montalto Signature Properties

Are you thinking about buying a home in the future? Even if you aren’t planning to do so imminently, there’s no time like the present to start thinking about your credit score. Credit can take years to build and only a few small mistakes to destroy, so keeping careful track of your credit is vital.

But why?

When you decide to take out a mortgage loan (or any other type of personal loan), your credit rating will influence your eligibility to obtain that loan and also determine the interest rate that you are offered by the lender. Your credit score is calculated by the three major credit reporting bureaus: Equifax, Experian, and TransUnion. You can order a free copy of your credit report once annually so that you can find out your current score – represented by a number between 300 and 850 – and keep an eye out for any major changes. You’ll need a score on the high end of the numerical scale in order to obtain an attractive interest rate on your mortgage.

So, how is your credit calculated?

Your credit score is based on a number of factors. One is the length of your credit history, which is the amount of time that you have been paying off debts to lenders or creditors, such as credit cards, car loans, and the like. Your credit score will also reflect whether you have missed payments or paid them late, and whether you have ever defaulted on a loan. The number of lines of credit and credit cards that you have open in your name can also affect your credit, as can the number of inquiries made into your credit during a certain period of time.

If you feel that there is an error on your credit report, check with the creditor in question to make sure that you have your facts straight. If you determine that an error has indeed occurred, you can contact the reporting bureau or bureaus involved and ask about rectifying the discrepancy.

If your credit is poor, how can you fix it?

Repairing bad credit takes time and patience, but it is doable. The best way to recover from a bad credit score is to make sure you have a clear notion of all lines of credit open in your name and to make all of your payments to each creditor on time. Taking out a credit card, using it carefully, and paying on it monthly will help establish good credit. And make sure that you are aware of any changes your creditors make to your accounts, such as an adjustment to a due date or minimum payment. Close any open accounts that you no longer use to avoid being blindsided by fees that you might not remember to pay.

For severely tarnished credit, there are a number of credit repair agencies that can provide credit counseling and even help you consolidate debt. Make sure that if you use such an agency, it is a reputable one.

What about that home loan?

Contacting your lender at the very outset of your home buying process can help you establish how much home you can afford and what type of interest rate you might expect. By running your financial information through the loan underwriting process, your lender should be able to pre-approve you for a home loan. And a pre-approval letter can go a long way toward being ready to make an offer when you find the house that you love.