I am ready to buy a house, does recent credit matter? An open letter to credit challenged borrowers.
When looking at a mortgage applicant, lenders look for two things:
1. The ability to repay
2. The willingness to repay
You have the ability to repay. You have a good income, you have even saved money for the down payment and closing costs. Unfortunately, your recent history is still not showing the willingness to repay. I realize that you have recently paid many of these items in full. Unfortunately, even paid in full collections affect your credit scores.
PLEASE DO NOT PAY OFF OLD COLLECTIONS, you will bring old negative credit challenges that is not affecting your credit score to current negative (Yep, even if it is paid off!) credit, potentially lowering your credit score
In order to continue on the path to a better credit score, you will need to:
· Continue to pay down credit cards-goal is to be no more than 35% of available credit
· pay all bills on time.
· not allow any new bills to go to collections
· If the majority of your credit is closed or in collections it will be important to establish good credit lines-check with your credit union or bank to see if they offer a secured credit card that reports to the bureaus. You can also check with Orchard Bank.
Credit scores are based on the following:
1. Payment history: 35 percent of the total credit score is based on a borrower's payment history, making the repayment of past debt the most important factor in calculating credit scores.
2. Debt amounts: 30 percent of the total credit score is based on a borrower's total outstanding debt
3. Length of credit history: 15 percent of the total credit score is based on the length of time each account has been open and the length of time since the account's most recent action.
4. And 5. New credit and credit mix: Each comprise 10 percent of the total credit score. Borrowers, even those new to credit, should avoid opening too many credit lines at the same time, since such behavior could suggest they are in financial trouble and need significant access to lots ofcredit.
If you have had credit challenges in the past, with desire and work you can buy a home. It might not be today, it might not be in a month, but you can get there. Make a plan and stick with it! If you need help in Maryland, call me. If you need help elsewhere, let me know, I can probably help you find a great lender wherever you are!
I am ready to buy a house, does recent credit matter? An open letter to credit challenged borrowers.
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