The Importance of Credit Scores in the New Economy
by Brandon Cornett
For many people, it's hard to keep up with the rapid changes that are taking place in our economy right now. I keep the news on while I'm working, because it's my job to stay informed -- and I still have trouble following all of the developments.
But there's one thing I do know about this economic crisis, and it will affect all of us in the coming months and years...
In the post-crisis economy, you will need a better credit score to get financing.
This includes any kind of financing you can think of, from student loans to car loans. And it goes double for home mortgage. This trend was starting even before the financial stuff hit the fan. Back in May, for example, I was watching Jean Chatzky talking about credit scores on TV (she's the financial editor for NBC's The Today Show). According to her data, home buyers in May of 2006 needed a credit score of 620 or higher to qualify for the best rates on a mortgage loan. Just two years later, in May of 2008, you would have needed a 750 or higher to qualify for those same rates.
And as we all know, things have gotten even tougher since that program aired.
Here's another example to reinforce my point. A couple of weeks ago, I received an email from a staff member with NBC Nightly News. She contacted me through the Home Buying Institute website I publish, because she wanted my help finding people to interview for an upcoming show. The show was going to be about people who were having trouble qualifying for mortgage loans, even though they had good credit scores.
Do you see the pattern here?
Sure, some of this will "blow over" when our economy starts to recover. But I can practically guarantee we will see some new legislation about giving loans to people with bad credit (subprime loans). Some new laws have already been passed to this effect. On top of that, financial institutions are going to be in "survival mode" for a long time to come. So the last thing they want to do is give out loans to risky borrowers.
Now consider the fact that millions of Americans have bad credit, and you can see where I'm going with this. From a real estate standpoint, a lot of folks are going to be left out in the cold in 2009. But you can avoid being one of them by following this advice:
Start Improving Your Credit Score Now
If you are one of those people with a low credit score, and you would like to buy a home in the near future, you should focus on improving your score. It's not as hard as you think, and you don't have to pay some "credit repair" company to do it for you. Here's a three-pronged plan of attack to get you started:
1. Start by requesting copies of all three credit reports from Experian, TransUnion and Equifax. Review your reports for errors, such as accounts that aren't yours. These errors can drag your score down.
2. Start reducing some of your debt, starting with those high-interest credit cards. It's a good idea to keep you oldest credit accounts open though. If you close your oldest account, you will actually shorten your credit history, which could lower your overall score.
3. Pay all of your bills on time! A history of missed payments can seriously damage your credit. Pay at least the minimum balance due on all of your bills. Of course, if you want to reduce your debt you'll have to pay more than the minimum due each month, which will require some budgeting on your part.
* Copyright 2008, Brandon Cornett. You may republish this article if you retain the citation notes and hyperlink below.
Citation Note: This article was created by Brandon Cornett, publisher of the Home Buying Institute network of real estate websites. You can learn more or contact the author by visiting his mortgage refinance blog at http://www.mortgage-refinance-advice.com/blog/
