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So, your credit has seen better days. Good news—it’s not the end of the world. While you may need to jump through hoops to even rent an apartment right now, you can bring your credit score up to eventually qualify for home-ownership. Start working on fixing your credit today.
Image by CafeCredit.com
When Your Credit Needs an Intervention
If you’re looking to buy a home in the future, fixing your credit score is vital. The recession of the late 00’s is still fresh in the minds of lenders, making home loan qualification regulations tight. For example, these days, you’ll need at least a 580 even to be considered for an FHA home loan.
The great thing about FICO scores is that they only go up and down according to an algorithm. These numbers aren’t biased. They don’t care who you are or where you come from. They only rate your financial capacity based on what you do. So, what can you do to bring up your credit score for home ownership?
1. Create a Good Payment History
Did you know that your payment history makes up roughly 35 percent of your credit score? Unpaid bills like past-due car payments are often submitted to credit reporting agencies. If you have anything like this on your record, you’ll need to remove it and replace it with a squeaky-clean record of fully paid bills.
Having no credit can be just as bad as having a low FICO score. With no history to go by, lenders may also be wary of trusting you with a home loan. If you have no credit, start making a paper trail for a good payment history, like taking over a phone bill. This will help set the foundation for a good score in the future.
2. Keep Your Balances Low
Not only should you shoot for a good payment history, but you should also keep your credit card balances low. Just because you have an $8,000 limit on your Visa card, it doesn’t mean it’s okay to make large purchases you can’t pay off on time. Credit reporting agencies see this kind of behavior as risky, which can lower your FICO score.
3. Remove Bad Credit Reports
Never underestimate the power of negotiation. Creditors don’t like unpaid bills just as much as you don’t like being bothered about them. When you call and present a “pay for delete offer,” you have a chance to get your bad behavior removed after you pay off the debt. Many creditors will be happy remove your nonpayment records in exchange for receiving the full payments. If you’re short on cash, negotiating installment payments over time is also often doable.
On a side note, you might have inaccurate bad reports. In this case, file a dispute letter to get the record removed.
Get to Work
A good credit score paves the way to a bright future of home-ownership. By taking these steps as soon as possible, you are likely to see improvements in your credit score.