Bills.com's Housser Provides Prescription for Avoiding Subprime Mortgages

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Online consumer portal founder offers 9 steps to build prime-worthy credit

Rising foreclosure rates. Tightened mortgage lending and a government bailout plan. Companies folding and talk of a looming recession. Over the past year, the United States has undergone an economic correction based in large part on the implosion of the subprime lending market, but Bills.com co-founder and co-CEO Andrew Housser tells would-be home buyers how to shore up their credit scores and profiles to help remain eligible for a new mortgage, even in these difficult times.

"Today, it is increasingly difficult to obtain a subprime mortgage, a term that refers to a home loan made to individuals with less than 'prime' credit," Housser explained. "Fortunately, one surefire way exists to avoid a subprime mortgage. It is to not need one -- by having prime-worthy credit."

Credit scores range from 300 to 850. Higher numbers indicate better credit, or a greater likelihood of repaying debt. The median U.S. credit score is about 725. A score below 680 usually results in a borrower being charged a higher interest rate or being denied credit. Lower scores (typically 650, or sometimes 620) are considered subprime.

"These scores qualify only for loans with higher interest and stricter requirements -- if you can get a loan at all," Housser said. "A good credit score can significantly boost your ability to borrow money. Credit scores also can affect consumers' ability to rent an apartment, lease a car or even get a job."

Housser offered the following tips for consumers to improve their credit scores:

1. Understand the score. The first step in good credit is monitoring credit reports. Each of the three main credit reporting agencies (Experian, Equifax and TransUnion) tracks consumers' credit history and calculates their credit scores. The score from each agency may be different. Get a free credit report each year at http://www.annualcreditreport.com.

2. Correct mistakes. Correct any inaccuracies on the report. Visit the credit bureaus' Web sites for information on how to file a dispute. Credit bureaus must investigate any disputed items and remove them if they cannot be verified, Housser noted. Keep copies of all correspondence.

3. Build job history. A stable job history is one factor lenders consider when offering a mortgage loan. Creditors look at job history to understand a consumer's stability and income.

4. Pay bills on time. On-time payments are very important to good credit. Paying bills on time for as little as one month can raise a modest credit score by 20 points.

5. Avoid new debt. "When preparing to apply for a mortgage, do not open any new accounts for six months ahead of time," Housser cautioned. Every new inquiry to a credit report affects the credit score. However, he noted that when consumers shop for the best mortgage loan, credit bureaus do not hold against them multiple inquiries for the same product within a short period of time.

6. Avoid payday loans. Payday loans have annual rates of 200 percent (or more) -- a terrible path into a debt snowball that can destroy financial security.

7. Do not max out cards. Do not charge credit cards up to the limit. "If possible, keep one or two cards open with low or no balances," Housser said. "This will help the important 'credit utilization' aspect of the credit score. Also, avoid making substantial charges on cards one to two months before applying for a mortgage, even if the balance will later be paid in full."

8. Do use credit. Credit bureaus rely on past payment history to gauge borrowers' future behavior. Closing unused accounts while maintaining some debt creates a higher debt-to-credit ratio, which appears as a greater credit risk and lowers a credit score. Use credit cards sparingly (and pay them off monthly) to maintain a current credit history.

9. Resist identity theft. Identity theft can destroy credit ratings. "Protect yourself from unscrupulous individuals who could go through your trash, steal account numbers online or get information through "phishing" scams," Housser said. "Keep important financial information and account numbers in a secure place, shred documents that contain personal information, and never give out personal information in e-mails or phone calls you did not initiate."

"In today's financial market, a good credit score is more important than ever," Housser said. "Take steps today to build and safeguard your credit. A solid score will repay your efforts today and in the future."

Based in San Mateo, Calif., Bills.com is a free one-stop online portal where consumers can educate themselves about complex personal finance issues and comparison shop for products and services including credit cards, debt relief assistance, insurance, mortgages and other loans. The company blogs about consumer finance issues at http://www.bills.com/blog. Since 2002, Bills.com has served more than 30,000 customers nationwide while managing more than $1 billion in consumer debt. Bills.com is a division of Freedom Financial Network, LLC, whose co-founders and CEOs, Andrew Housser and Brad Stroh, have been named Northern California finalists in Ernst & Young's Entrepreneur of the Year Awards.

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