Tuesday, June 14, 2016 / by Cody Ford
For many would-be first-time homebuyers, the thought of owning a home seems like a remote possibility. Although many would much prefer the option of owning versus renting, the obstacles to secure a loan and find an affordable home seem too great to overcome.
If you have your sights set on owning your own home and kissing rental payments goodbye, getting your credit straightened out is the first step. Here are seven steps to improving your credit and securing a loan that will best suit your situation and make homebuying easier and more affordable.
Know Your Credit Score
Begin your quest by finding out what your current credit score is. Your score will be based on your history of paying back personal loans, car loans, credit cards and other debt in full. Scores range from 300 to 850 and you will need a score of at least 620 to qualify for a home loan and 740 to obtain the best interest rates and terms.
Every consumer is entitled to a free copy of your credit score each year from each of the major credit-reporting bureaus, Equifax, Experian and TransUnion. Check each one to be sure all information is accurate and up-to-date.
Fix Credit Errors
After reviewing your report, if you find any inaccuracies, write a letter to the credit-reporting agency and explain why you think the information is incorrect. Provide any evidence or documentation that will support your case and ask that the error be corrected or removed.
A history of even a few late payments will negatively impact your credit score. The easiest and best way to impact your credit score going forward is to pay all of your bills on time. Not only will this boost your credit score, but it will save you money not having to pay late fees. Anything late by less than 30 days will probably not be reported.
Limit Credit Usage
Paying credit card bills in full each month is another way to boost your credit score. If you aren’t able to pay the entire balance, pay as much over the required minimum payment as you can to begin eliminating debt. Stop using credit cards while you are rebuilding your credit to keep balances from increasing.
Expand Credit Availability
If you have had a credit card for a long time and have paid on it routinely, that works in your favor. However, if you open several new cards at one time, it will lower the average age of your accounts and pushes down your credit score. Don’t close credit accounts, even if you’re not using them. Keeping them open with a zero balance will raise your available credit, which will increase your credit score.
Limit Accepted Credit
Credit scores are based on how much credit you are offered compared to how much credit you are using. If you are offered $1000 of credit and use all of it, your score will be lower than if you are offered $1000 of credit and only use $100 of it. Opening new lines of credit that you don’t use can often boost your credit score.
Once you begin conquering your credit dilemmas, it will take some time to improve your score. Be patient with the process. The bigger gap you put between your rocky credit history and your current dependable history, the less your credit will be affected. Keep chipping away at the process.
Once you make a plan to tackle your credit score, be persistent and patient with the process. Consistent progress will begin to build a higher credit score and will open new doors to becoming a homeowner.
When you work with the Trish Ford Real Estate Team, we help you get your credit on track. We have resources that can help you with credit repair and mortgage lenders who can help with loans available to those rebuilding their credit. Our experienced team will help you tackle credit issues and pave the way to finding and owning a home of your own.