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Renovation Loans

In need of a renovation loan? Learn how to fix your credit score first

Before you visit your banker to inquire about a home renovation loan, you should learn what your credit score is first. That three-digit score is used by lenders to help determine whether you’ll qualify for a renovation loan and for what terms, namely at what interest rate. A low credit score may not deny you a loan, but you may end up paying thousands of dollars in increased interest payments if you are not careful.

You can fix your credit score yourself by following our step-by-step instructions as outlined here:

1. Obtain your credit score. What is your credit score? What does it mean? You can obtain your credit score from MyFico.com for a fee or you can obtain scores that are based on similar data from CreditSesame.com and CreditKarma.com. Scores of 700 to 720 and above are usually rated as excellent, what you want to strive for if looking for new credit. You also need to know that a score of 580 and below puts you in sub-prime lending territory, not a good place to be when shopping for a renovation loan.

2. Check your credit reports. You can obtain copies of your credit reports for free by visiting AnnualCreditReport.com. All three credit reporting bureaus — TransUnion, Equifax and Experian — are required by law to issue one free copy of their reports annually to you on demand. The AnnualCreditReport.com website is the only place where your reports can be obtained at no charge to you. Request all three reports and download same. Review each report carefully to make sure that the information about you is correct and that there are no late payments listed with your account. If you find errors on any of the reports, contact that credit bureau directly to report a problem. By law, the bureaus have 30 days to fix these errors.

3. Reduce your debt. Your credit score is composed of five parts: payment history, amounts owed, length of credit history, new credit and the types of credit used. The amount you owe represents 30 percent of your score and can have a big impact on your overall score. If possible, reduce your debt before you take on new debt. Lenders are more willing to extend a loan at favorable terms if you demonstrate good credit management. Never borrow to your credit limit with your credit cards, however you may be able to gain a higher score by asking for an increased credit limit.

4. Contact your creditors directly. Your creditors can help you improve your credit score by working with you on some of your problem areas. For instance, if you made one late payment and that information was reported to the credit bureau, you can request a “goodwill adjustment” to expunge those details. You can also ask the credit bureau to eliminate information that should have been dropped earlier. It may not effect your credit score, but it could improve your chances of getting a loan.

CREDIT REPORT DISCREPANCIES

Not all information on your credit report that is wrong or outdated needs to be fixed. If an old employer is listed as current or if your address information is not up to date, it won’t have any bearing on your credit score. What’s more, accounts you closed that are listed as open won’t hurt you either. Finally, avoid applying for new credit elsewhere when your focus is on obtaining a renovation loan.

It can take three to six months or more to raise your low credit score up to an acceptable level. Consider also discussing your needs with several lenders. By shopping around you may be able to shave one-quarter to one-half of a point off your interest rate.

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