Credit again?

Another article about the importance of credit. From the NY Times.

IN most cases it is easier to qualify for a home mortgage by applying with another person — be it a spouse or partner, or even a close friend or sibling. But problems may arise if the other person’s credit score is less than stellar.

The federal agencies that oversee and buy mortgages from lenders, like Fannie Mae and Freddie Mac, require lenders making conventional loans to focus on the lower of the two FICO scores. (Scores generally range from 300 to 850, with the national median at 711, according to FICO.)

For some people, it may be necessary to hold off on a home purchase for a few months to allow the co-borrower with credit issues to clean up his or her report and raise the score.

This can be done by being “hypervigilant on paying your bills on time” for a few months, or by perusing the credit report and correcting any inaccuracies.

One way to raise a FICO score by 30 to 40 points in a few months is to be added as an authorized user to a well-established person’s credit card, even if you don’t use the card. Your score can rise, too, if you pay down credit-card balances so they are at least 10 percent of the maximum credit limit.

Even if you cannot afford to pay down the cards that far, it can help even to reduce the balance to, say, 60 percent of the limit. The closer your balance is to the credit limit, the more the score will increase when the balance is paid down.

If the cards are “maxed out,” it will be very negative.

A borrower with a credit score of 620 to 640 could pay as much as one percentage point more in interest than a borrower with good credit, say around 760 or higher.

Sometimes it may make more sense to have just one person on the loan — provided, of course, that the person can afford the monthly payments alone. Some banks may allow two people to appear on the property’s deed with only one on the mortgage note.

While the FICO credit score is important, it is only one part of what lenders evaluate in the application process. Among other factors that underwriters examine: the size and source of the down payment (many are now requiring 20 percent); both applicants’ incomes and whether they have been rising; their debt-to-income ratios; and the property they are buying.

If you are looking for a mortgage, get a copy of the credit report. Make sure it is correct.