Have you had a bankruptcy in the past? Had debts that went to ‘Collection” and were written off? Do you think because bill collectors don’t call anymore, it’s all forgotten?
Wrong!! Not only is it not ‘forgotten’, you have to face it and work through it if you ever want to buy a home. Here we’ll discuss ideas that have worked for others.
Although every buyer who is turned down because of credit has different issues, some things remain the same. And in general, the following plan applies to just about everyone.
First, every grown-up should have a checking or savings account and NEVER let it get overdrawn. Keep a manual check register up-to-date, and every week go ‘on-line’ to your bank to make sure you haven’t forgotten to record a check or debit card purchase. In fact, keep the debit card in your check book so you can record purchases as they are made. Then trust your own bank balance, not the bank’s – their numbers will not include checks that may still be in ‘float’.
Second, get existing bills paid up to ‘current’ and keep them current. This takes living within your means – and that takes discipline. This is critical. A mortgage lender doesn’t want to hear an applicant’s excuses for why payments were behind. Your accounts must be kept current!
Third, if you do not have a credit card, get one. If need be, you can get a ‘Secured’ Credit Card through a number of banks – Capital One, and Orchard Bank to name two. They issue cards to folks with poor credit, and because of that, they charge much higher rates.
A ‘secured’ card also means that you will be putting up your own money against which you will make purchases. So why would you want to do that? Because every month you will now have a report going to the credit bureaus showing your ‘new-improved’ payment history – and that is what will build up your credit score.
PLASTIC CARDS ARE NOT FREE MONEY!! Use your credit cards minimally (maybe just for gas purchases) and pay them out IN FULL every month so you avoid those outrageous high interest charges (as high as 30% APR)…. And pay on-line by bank transfer, or mail a week early if paying by check. See to it your payment arrives at least a day or two before the due date… you don’t want to chance getting a $35-$40 late fee.
Just a note: A $40 late fee is tantamount to pulling two $20 bills out of your wallet and lighting a match to them. And for what? For being a day or two late with your payment? But those are the credit card rules you agreed to. So be careful!!
In short, repairing your credit is possible and can be done in a relatively short time… but it takes total dedication and tunnel vision when it comes to your finances and buying habits.
It may even help to know that you are not alone. For example, some people work strictly on commission. They know ahead of time that during certain months, sales slow down and money gets tight. In times like that, these folks need to cut back on non-essentials. It’s not the time to go out and run up the credit cards!
And finally, months prior to buying a home, do not take on any new debts or make a major purchase (like a car)… every credit inquiry shows up on your credit report and can push your score down. And a major purchase affects your debt to income ratio. (That’s another topic.) Remember – you’re goal to repair your credit so you can buy a home.
So make a plan for yourself. Stick to it. And by all means, stay in touch. My newsletters will keep you up to date with what is happening in the home buying market. And hopefully by this time next year you and your family will be celebrating holidays in your very own home!!