You're ready to buy or refinance your home, but, bam, you get blindsided by your lender. Turns out your credit score isn't sufficient for you to do what you want to do. What do you do now and where do you go from here?
There's nothing more frustrating than wanting to buy a home and finding out your credit isn't where it needs to be. Comments such as 'your score is too low' or 'you have too many collections' aren't exactly helpful when there's no follow up dialogue on how to correct these matters.
Not to worry, I can help you with this!
First things first. I know you want to fix your credit as quickly as possible. I've been there, and I get it. But it is incredibly important that you DO NOT under any circumstances hire a 'credit repair company'. You can fix your credit yourself for free!
In order to repair your credit to prepare for a mortgage you need to know how credit is built, maintained and scored. Let s jump right in:
Installment Loans are things like car payments and signature loans. They have a fixed monthly payment for a fixed term. The credit bureaus rate you on installment loans based on your payment history. The longer you pay this monthly payment on time, the better your score gets. Miss a payment and your score plummets.
Revolving debts are your credit cards. With revolving debt, you are rated on TWO different things..., payment history and credit utilization. Paying your credit card payments on time, every time raises your score. How you use your credit card is also important. The higher your balance is in relation to your credit limit, the lower your score goes. If you have a $1000 credit limit and you keep your balance at around $900 or so your score will suffer as you are 'utilizing' all of your available credit and are hence considered risky. As a general rule if you can keep your credit card balances at 50% or less than your available limit, you'll see the benefits in your credit scores.
Collections are accounts you haven't paid and the original creditor has sold your account to a collection company. Collection companies are VERY aggressive and are going to harass you for years on end wanting their money. What's most damaging about collection companies though is how they report your debt. Collection companies report your $100 medical bill each month as if it were a brand-new account. Since a recent negative mark on your credit report causes the most damage, you're going to see your credit score suffer greatly if these are not taken care of. I've worked with plenty of clients who should've had a 700 score, but instead had scores in the 500 range thanks to one or two $100 medical collections.
Credit depth is also important. Having a mix of credit types is incredibly helpful. If you only have one credit card you're not going to obtain the great score your looking for very quickly. But, if you have a couple of them along with various installment accounts your credit profile will build super-fast if everything is paid on time.
If you're thinking about getting a mortgage and have questions, feel free to contact me. I'd be happy to help!
Contact Wendy 7 days a week for more information:
Phone or Text: 321-794-5626
Facebook Messenger: @aloaninthesun