Buying a home is an essential component of the American dream - one that is entirely achievable by taking the right steps. However, when it comes to the home buying process, one of the biggest concerns that future home buyers have is whether or not they have the right credit score to be able to purchase their future home. For those on the lower end of the credit spectrum, this can be a particularly concerning part of the process. Having a lower credit score can be frustrating - especially when you are so close to owning a home, but it doesn't need to be. Having a lower credit score is easily fixable. Don't allow a subpar credit score to get in your way. There are ways to raise and fix your credit score, either by yourself or using a professional credit repair service to get you closer to achieving the goal of purchasing your home.
Keep Everything Current
In order to improve your credit, one of the most important things that must be done is to keep things current. Try to pay current bills and credit cards on time and above minimum payment. The reason is this: the lower your credit utilization is, the higher your score will be. While life happens which can create difficulties making above minimum payments, improving this going forward can give your credit score the boost it needs and will also help to prove to lenders that you are able to meet your current financial obligations. Paying down your balances will also save you money on interest and help you pay off your debts more quickly.
Pay it off, don't close it out
Paying down your balances is important - as long as you don't close out your accounts. Keep your credit cards open with balances low to show that you're able to handle credit responsibly. Keeping your accounts open also shows that you're able to maintain accounts in good standing for a long period of time.
Pull Your Credit Report
The next step in improving your credit score is to pull your credit report. To put it simply, you need to know what you're working with in order to fix it. There are several websites where your credit score and information can be pulled for free once a year. Additionally, pulling your credit report doesn't negatively impact your score, and doing so allows you to have a detailed picture of where your credit is at the present moment.
Check for Inaccuracies
Once you've accessed your credit report, go through each area and look for inaccuracies. Report anything that does not belong to you, duplicate items, or items that are incorrect. This process needs to be well documented, so keep copies of any paperwork you acquire. This is one of the easiest things that you can do in order to quickly raise your credit score and there are many online guides detailing the process of filing a dispute.
What Lenders Will Look At
After you've assessed any mistakes on your report, the next step is to go over the typical lender requirements so that you have an accurate depiction of what the requirements are for a typical lender.
Typically lenders will look at:
1. Employment History
Your employment history is important to lenders because it shows any gaps in employment and therefore income. It also helps lenders to verify your identity and can be indicative of your ability to be financially stable.
2. Credit Inquiries
Too many credit inquiries makes lenders uneasy. Try not to apply for any new lines of credit while you are in the mortgage application process.
3. How you handle your debts
Your past debt and credit limits will be looked at closely. Lenders will want to verify that you pay on time, how high your utilization limits were/are, how long it takes you to pay things off, etc. Any public information/public records regarding debts are also analyzed, such as foreclosures, liens and bankruptcies. These are important components of your credit worthiness according to a lender.
Avoid Any Big Purchases
Buying a home is a large purchase in itself and will more than likely utilize a great deal of your income. As such, it is prudent not to make any large purchases or open any lines of credit while attempting to purchase your home.
Borrow From Friends in Order to Pay Down Debt
If you're simply unable to lower credit utilization on your own, one option is to borrow or have a friend or family member gift you what you need to bring those numbers down. While it may be uncomfortable to ask for help, many people close to you would gladly try to help you achieve your dreams of owning a home.
No matter what your credit looks like, there's always time to turn things around. Taking control of your credit may seem overwhelming, but the rewards are worth the effort!
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