So you have a good job and some savings and you’re thinking it might be time to move out of the apartment you’ve been renting and buy a home in San Diego. But when you look up your credit score you make a shocking discovery: your credit score is low. And it’s so low that qualifying for a good home loan seems unrealistic.
So what can you do? The following eight items provide a checklist you can run through to help you know the best steps to take to build credit when you’re looking to buy a house.
Double-Check That Credit Report
There may be an exact formula behind calculating an individual’s credit score, but it is an inexact science. Credit reports are not always accurate. They can have the occasional discrepancy, so be sure to check all three credit scores and compare them against one another.
If you find any discrepancies, note them, and challenge the credit bureaus to re-check their records. It’s possible that something appearing on your credit report doesn’t belong, and thus can be removed. Dispute any inaccuracies with a credit agency and be prepared to dig up old documentation and provide proof of your version of the story. The credit bureaus should be prepared to do the same in return.
Checking your credit report is important because some people who are victims of identity theft might have bad credit scores due to financial fraud from an unauthorized party. In this case, it is important to not only expunge all fraudulent charges, but also make changes to protect one’s identity from future fraud.
Discover Sources of Bad Credit Marks
If bad credit is a problem, then it is important to find out what caused the ding to your credit score. Are there delinquent payments or maybe a forgotten medical bill that went accidentally unpaid for years? Are you carrying too much debt on your credit cards?
Whatever the issue, you need to scour through your credit report and look into any item that could be affecting your score negatively.
Believe it or not, some blemishes on a credit report can be removed through a negotiation process. If you can promise to pay an account in full, a creditor might be willing to change an account status. Some also offer adjustments based on circumstance, such as prolonged unemployment or health issues.
Make Payments On Time
Building up your credit begins with a commitment to being organized, responsible, and thorough with the loans you choose to take out. This means being diligent with paying all bills on time.
Take Out A Small Loan
Sometimes the way to earning a big loan is to prove to lenders that you are a safe bet. You can do this by responsibly handling a smaller loan. This can mean taking out a small personal loan, or purchasing an item on your credit card that you can easily pay off in installments. This is a quick way to make consistent payments and prove financial responsibility.
Leave Accounts Open
For many people, the logical thing to do when getting out of debt is to close a problematic account in order to avoid future problems. It may seem logical, but it’s often an errant move. Closing accounts can actually harm your credit score. Sometimes it’s better to just keep accounts open, even if they are going to sit idly.
If you’re unsure, be sure to check with a certified financial planner who can help you understand exactly what your situation calls for.
Carrying too much debt on credit cards lowers your credit score. Thus, one of the quickest ways to raise your score is to pay off your debt.
Understand Relativity of Credit Cards
Debt on credit cards is evaluated by lenders based on your balance relative to the credit limit on an account, also known as your debt ratio. Keeping a low balance is best, whereas maxing out your credit lines can be detrimental to your score. Again, all of this advice is relative and each situation will be different. Under-utilizing credit cards so that the balances stay proportionally low will also improve credit.
Getting your credit into good standing can be a time-consuming process, but it’s necessary and ultimately worthwhile if you’re aiming to get into a new home with a good interest rate. For some people, the road to home ownership has more hurdles than others, but it’s still a reachable goal.
As soon as you’re ready to start the process I am here to assist you along in your journey!
Skyline Financial Corp. and its loan officers are not credit experts. Always consult a credit specialist for more details.