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8 Tips to improve your credit score before you buy a home
Today we are going to talk about eight tips to improve your credit before you buy a home. There’s a lot of folks out there that are planning to buy. They want to buy. They’re in a situation where maybe their credit restricted and they just don’t know where to start. So this video is for you.
Now the first one, we’ll dive right in here, is working with a lender so you can know where you’re at and where you need to be with your credit. They’ll run a credit report so you can see your credit score or your FICO as it’s called, and also a list of potential past due accounts, if there’s any judgments, anything that needs to get cleaned up, as well as how much debt you have on your name that may be reducing the amount that you can qualify for that you could even get paid off and cleaned up that we’ll talk about here in a minute. So that’s number one, working with a lender, and especially a real estate lender, someone who understands the qualification process for you to buy a home.
Number two is to get mistakes from your report fixed. Sometimes when people pull a credit report, they notice trade lines or items on their report that wasn’t theirs, it really was reported incorrectly and it’s causing their credit score to be lower or be dinged because of something they didn’t even do. So if that happened to be showing up on your report, we’ve got to get it fixed, we’ve got to get those removed, sending the right letters to the companies, making sure we’re contacting the credit reporting agencies and flagging those as incorrect.
Number three, stay current and pay your bills on time. Can’t stress this enough. It is so important to pay your bills on time. And if you have been in some bad habits of letting those go or some of those go, stop that today and get those back on track
The next point is to budget. If you’re having a hard time paying some of your bills on time, work out a budget. What are some of the things that you can cut from your expenses and make sure that you’re paying on the necessary and all of your recurring bills, and delete out and get rid of some of the fluff, some of the things that are causing you to fall behind in your expenses?
Number five, pay off excessive debt. One thing that gets into the calculation of your ability to qualify as well as how much you can qualify for with a home is how much debt you have, how much in recurring payment obligations you have, car loans, student loans, credit card payments, any of those sort of revolving accounts go against your ability to make a mortgage payment, so it reduces the amount that you’d have available in your disposable income to make a house payment. So reducing that, getting debt paid off as quickly as you can, but work with your lender on this because you don’t want to go overboard, you don’t want to pay off debt and not pay other bills. You want to make sure that you know which ones are going to make sense to pay off.
Number six, maintain low credit balances. It’s been known that it’s good to have credit and lines of credit, not excessive, but maybe one or two or three, but have low balances on them and pay them off regularly. Make sure they’re paid off every month and you can carry a little bit of a balance so that that can increase your credit score. Now if you have great credit, I’m an advocate of not having debt and not using credit cards, but this is a way to kind of jumpstart your credit and make sure that you can get that score to jump up.
Number seven, negotiate past due balances, collections, judgments, things like that, and seek settlements. You’d be surprised when you contact someone that you owe money to, an organization, a company, a debtor of some kind, what they’re willing to do. If you owe $2,000 to an organization and it’s a collection account, call them and say, “Hey, if I can pay this off by x date, will you reduce the balance by $1,000,” or, “Will you take 400 out of the 2,000?” You’d be surprised what they’re willing to do because of the cost that they incur to try and collect from you. So if you have judgments, have collection accounts, see if you can seek resolution and settlements on those accounts.
Number eight, work with a credit repair specialist. If you want someone to really help you out, give you guidance, do a lot of the legwork for you, there are some low cost or even free options out there for credit repair organizations that can walk you through the different steps, and they probably even have more tools available than you could access on your own. I recommend working with a credit repair specialist. Your lender will oftentimes have a referral, have a contact, someone that they work with that they can recommend.
I hope this is helpful. If you have any questions, feel free to reach out to our team, we’re more than happy to help.