Credit Scores Now More Important than ever

Buyers anxious to take advantage of record low interest rates may be disappointed if their credit score does not qualify them for a loan. Buyers who qualify for a mortgage may find that they're ineligible for the best rates because lenders have tightened their credit standards. “Credit scores have never mattered quite as much as they do now,” says Bob Walters, chief economist for Quicken Loans. As an example, current Fannie Mae standards announced this week requires a credit score of 620 for a mortgage with 20% down...in the past a 580 credit score was acceptable.

If you’ve already found a home you’d like to buy, there’s not much you can do to raise your score before you apply for a loan. But if you’re just starting to tour open houses, there are steps you can take to improve your credit profile, including:

• Review your credit reports for errors. You’re entitled to a free credit report once a year from all three of the bureaus, but only if you go through this website... www.annualcreditreport.com.

• Pay off credit cards and other debts. One of the factors used to calculate your credit score is your “credit utilization ratio,” which measures the amount of credit you have outstanding vs. your total available credit. This ratio accounts for 30 percent of your score. Paying off balances will increase the amount of unused credit you have available, which will help your score.

Even if you’ve decided never to use credit cards again, don’t close your accounts. Closing a credit card account won’t help your credit score and could hurt it.

• Avoid opening any new accounts.