SAN ANTONIO REAL ESTATE NEWS

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Want Better Credit?  Here’s 8 Ways To Do It

Are you considering a return to the housing market?   Maybe you want to buy your first home. If you have bad credit, either of these options can feel almost impossible. Here’s why. Your credit score plays an important role in determining two things: if you qualify for a loan and the interest rate you receive. Even if your credit allows you to qualify for a home loan, your less than stellar credit score can leave you carrying a high interest rate, making those monthly mortgage payments far more expensive than they need to be.

Over the past several years, banks and mortgage brokers required exceptional credit scores to qualify for a loan. Luckily, they have begun to ease up on their requirements.  Even so, they still expect potential buyers to come to them with good credit. If you’ve gone through some hard times in recent years, but are looking to clean up some credit chaos, here are 8 important steps to take when you begin to consider applying for a mortgage.

Request Credit Reports. You may have been told that you have poor credit but until you look at the reports, you may not know why. Therefore, it's important to request your credit reports from the major credit reporting authorities: Equifax, TransUnion and Experian. Each company is required to provide one free report each year to US citizens upon request. It is easy to request online or if you prefer, you can call 877-322-8228.  If you think you know what your credit is and are ready to complete a home loan application, no problem; a lender will pull your credit when you apply and can let you know exactly what your credit score is.

Check and Correct Any Mistakes. It is common for there to be errors on your credit report, so go through each report to check and correct mistakes. If anything is inaccurate and can be proven to be so, The Fair and Accurate Credit Transactions Act requires the credit bureau and creditor to make the corrections within 30 days at no cost to you.

Pare Down Your Debt. If you have a significant amount of debt, make a plan to reduce it. Lenders tend to shy away from potential borrowers who carry a lot of debt as well as those who stay near credit limits. Additionally, if you have any late payments or collections, get them up to date. It is important to have everything current to show you are on the ball when it comes to your financial responsibilities. In fact, you can improve your score by as much as 50 points if you pay everything on time for a year.

Work with a Financial Specialist. If you are at a loss for where to start to rebuild your credit, consider working with a financial specialist who can help you establish and manage a plan to get on the right track and reduce your debt.

Establish Credit. This is very important for potential first time buyers who have no credit history. Not only do lenders want to see that bills are paid on time, they want to see that potential borrowers have some credit history. Get a couple of credit cards and use them each month to buy groceries, gas and other essentials then pay the card off each month. This helps you establish good credit and shows you know how to pay your bills each month.

Remove Older Delinquencies. Negative credit information must be removed from credit reports after seven years (10 years for bankruptcies). If you find anything on your report that is older than these limits, write the agency to have it removed from your report (we suggest you send it via certified mail to ensure you have proof the letter was received). If you find that after 30 days it is still on your report, the agency has violated this part of the Fair Credit Reporting Act, which can then be reported to the Federal Trade Commission. Since you sent a certified letter, you have proof the agency was informed.

Offer Explanations. There are times when outstanding debt may have an explanation.  For example, if you have a dispute over a medical cost or even a charge for an item you never received, you may want to ask the credit reporting agency to add an explanation to the outstanding debt on your report. While it may not affect your score, it helps lenders understand why you have this issue.

Do the Work Then Wait

You have heard the old saying, "good things come to those who wait". Repairing your credit is something that takes time. Once you do the work wait and give your score a chance to catch up to that work. As time marches on and you continue to make timely payments and pay down debt your credit score will eventually reflect all the hard work you have done, making it possible to not only buy a house but to get a lower interest rate.


Pre-approval:An assessment given by the lender that investigates the borrower

Mortgage:A contract that represents the debt owed by the borrower to the lender for the money borrowed to purchase a property.

mortgage:A contract that represents the debt owed by the borrower to the lender for the money borrowed to purchase a property.

interest rate:Generally expressed as a percentage, this is the periodic charge on borrowing money.

agency:Formed through a written contract, this is the binding trust established between sellers and buyers and their agent where an entity agrees to represent their client