Dear Esther – My wife and I have decided on the area we’d like to raise our kids in and found a house we love. In the process, we were disappointed to find out our credit score is not high enough to purchase. What can we do to improve it so we can purchase?
To get the keys to your dream home, it’s necessary to clean up messy credit. Your reputation as a debtor is the main deciding factor for a lender in determining not only your interest rate and reliability, but also if you can qualify for a mortgage.
It is important to look carefully at your credit report (which can be accessed free online) to see why your score is low, remembering the following:
* If you have bills in collection, pay them off as soon as possible. If you don’t have the resources to pay the balance, you may be able to negotiate a lesser amount to satisfy the creditor.
* If you see errors, get in touch with the consumer bureau and creditor immediately. Once proved, the mistake must be, by law, repaired within 30 days.
* Pay down loans. Your debt is evaluated in comparison to the total credit available to you, called credit utilization. So $1,000 of total debt with $1,500 total credit limit is probably worse than $3,000 debt with a $10,000 limit. If your credit utilization rises above 50 percent, your credit score will suffer.
* Pay all of your bills on time every month. Your payment history makes up roughly one third of your credit score, more than any other factor. If paying the amount due each month is not possible, call your creditors to discuss a reasonable payment plan acceptable to all parties. Then stay with the plan.
* Avoid applying for numerous new credit lines in a short period of time. Each time you apply for a new credit card, your credit score will take a hit.
* If you don’t have a credit card, get and use one in order to establish good credit. Make sure to pay it off in full every month.
If you follow these suggestions, your score will improve with time. If nothing else changes, your credit score will gradually creep up on its own and before you know it, you will own the home you love.
If you have real estate questions, please contact me – Esther Prosser, Stoltzfus Realtors, PO Box 20, Elverson, PA 19520, esther@stoltzfus.com, 484.269.7153.
