Part I in a three part series – CREDIT WOES
Those who are venturing into the waters of homeownership now are very smart. This is definitely the time to wade in. But before you do, this is the first in a four part series on THINGS YOU NEED TO KNOW before starting to look for a home.
My motto is if you want something – make it happen. So first, credit can be an obstacle when buying a home – but only if you let it. Anything can be fixed. Here are some tips and tools to get you started.
A credit counselor once told me that the FICO score formula is a secret treasure.. No one really knows the formula or the secret would be out. But, there are those that have mastered how it works. Little things effect it greatly. Here are some dos and don’ts.
Credit cards are the gold deblunes of FICO score. You can’t have the treasure without them. Remember two things. You can carry a balance each month, but keep the total balance under 50% of what you owe are as close to it. DON’T just pay the minimum balance or you will be dooming your credit and end up paying more in interest and premiums for everything you buy.
Also check the credit limit of all your credit cards and try not to exceed 30% spent of the credit limit at any time.
And a little caveat – watch the number of credit cards you have. FICO may score you lower because you have too much available credit. Save 10% today on your purchase is not worth paying more all the time.
Inquiries. When go try to get a loan, they pull your credit. One hard inquiry every 60 days or so is fine. But numerous inquiries can hurt. When getting a loan, it is better to get a soft inquiry. Shopping loans can affect your score when buying a car or getting another loan can temporarily hurt your credit score.
The biggest thing – don’t miss payments! Medical bills and installment loans can hit your credit score 50-100 points for just one missed payment. Send whatever you can and make it up right away. Collections can derail your credit faster than anything.
But it can rebound – anything can be fixed. First, correct your bad habits. Get a better accounting system. To get a new home, you want to be at least 600. The better the score, the better the interest rate and the easier it will be to be loaned.
Quick raises in score can be done with good trade lines to correct bad trade lines. You want someone reporting positive accounts to the credit bureaus. Prepaid credit cards can do that very quickly. Just pay them off completely. Small installment loans that you pay on time can do that. If you NEED to buy something like furniture or electronics, that may be better than paying huge interest on credit cards. That can help, but don’t buy anything you don’t need just to improve credit.
Credit counseling can also help you know what to pay off to make the best impact on delinquent accounts. However, make sure they give you a free consultation and understand exactly what they can do for you. There is a fee, so ensure you understand all the fees. There is no timetable for sure, so don’t expect one, but you also shouldn’t be paying month after month with no progress.
Pull your credit report and make sure it is accurate. Everything stays on your report – it is like this is your life of credit, you want to see paid or zero balance.
You can your credit report at www.annualcreditreport.com for free from all credit agencies, but ensure you don’t agree to remove any of your rights – check the terms and conditions. You can get it other places, but don’t sign up for a monthly services unless you want to. And ensure you get a reputable one and you understand the terms and conditions.
If there are inaccuracies, this is where the credit counselors can be really helpful. They know the ins and outs of getting inaccuracies removed. The credit agencies don’t want that to be easy for you.