Your credit history and credit score are big factors in your ability to secure a mortgage loan and purchase a home. If your spending and payment habits, and other past financial missteps, have left you with a less-than-satisfactory credit score, you can still purchase a home. You’ll just need to do some work first. Start the process to repair your credit before buying a house.
Pull Your Credit
You’ll need to understand your credit first. Go to www.annualcreditreport.com and pull your credit report. This is a free site sponsored by all three credit bureaus. Review every line, every creditor, and every balance. This step gives you the full picture of your finances.
Report Errors
It’s estimated there are errors on one in four credit reports. Erroneous late payments, fraud and having a common name are often the culprits. If you see errors, contact the credit bureaus to get them removed. This step may improve your credit picture immensely.
Get Current on Your Payments
Late payments are the biggest factor affecting your credit score. If you’re late on some of your debt obligations, get caught up as soon as you can. Get on a budget and use reminders to send your payments on time to avoid being late on anything again.
Pay Down Debt
If your credit card balances are near their limit, these are negatively affecting your credit score and your ability to get approved for a mortgage. Cut out all excess spending and pay as much on them as possible to lower the balances. Your target should be using no more than 30% of your total credit limit.
Don’t Apply for New Credit
Now is not the time to open a new credit card or buy a vehicle. Especially avoid those offers to open a new store credit card to receive a discount on your purchase. New inquiries on your credit mean additional risk, which can lower your credit score even more.
Stay Current on Your Payments
Yes, we mentioned this above. However, it’s so important that we want to make sure you remember it. Once you get caught up, make sure you stay caught up on all payments.
Control Spending
Stop overspending and charging your credit cards, or you’ll stay in this cycle of running up debt and struggling to pay it off. Write down a budget and do everything you can to stick with it. Keep your goal of buying a home in mind when you’re tempted to stray from your budget.
Stay the Course
Repairing your credit takes time, but it won’t last forever. Your credit scores are driven primarily from your actions within the last six months. If you get current and stay current on your payments, control your spending, pay down your debt, and avoid applying for new credit, you should see a big difference in your credit picture in three to six months.
Talk to your loan officer about home loans for people who have less-than-perfect credit.
