How to Repair Your Credit and Buy a Home

 Most of us, at some time or another, have done something to adversely affect our credit rating, perhaps without even knowing it. A late or missed credit card or home mortgage payment is just one example. When you buy a home, I will encourage you to get pre-approved for your mortgage.

There are three major consumer reporting agencies, or credit bureaus, that mortgage companies use to assess a buyer's credit rating: Experian, Equifax and TransUnion. Credit scores typically range from 300 to 850. For home loan purposes, a score of 650 or higher indicates a good credit history and will make it easy for you to secure a mortgage. If your score falls between 620 and 650, your borrowing capability will be examined more closely. And if you rate below 620, you may have a credit crisis.

Most lenders require a 620 or above to be qualified for a mortgage depending on your income, debt to ratio. However, there are a few I know who can get the deal done with a score of 580 and above.

Charge-offs appear on your credit report if a creditor has given up trying to collect from you and ends up writing off the amount you owe as a bad debt. Charge-offs are one of the main reasons why loan applicants are denied credit. 

If you have any charge-offs, contact those creditors immediately and make arrangements to pay off the old debt. After a few months of regular payments, or if you repay a charge-off debt in full, submit a written request to that creditor to change the status on your credit reports.

Late payments are handled slightly different depending on whether they are isolated incidents or recurring problems.

How to Repair It: If you have a single late payment here or there listed on your credit report, the best thing to do is contact your creditors by phone to discuss the situation. Follow the conversation with a written request to have the isolated late payments removed from your reports. If you're consistently late with payments, however, repairing the problem is a little more involved. You'll need to begin by setting a pattern of paying on time over several months. Once this positive pattern is established, call your creditors (and follow-up in writing) and let them know that you're back on track. With persistence and patience, you may be able to delete these score-lowering marks.

 Sometimes, creditors just make mistakes when reporting to the bureaus. Other mistakes might include charge disputes that resulted in an initial late payment that was eventually reversed. Unfortunately, it's the individual's responsibility to spot – and repair – reporting mistakes that lead to bad credit.

How to Repair It: Once again, contact your creditor by phone and follow up with a written request that the mistake be corrected. Because the Fair Credit Reporting Act (FCRA) requires that credit agencies and their information providers investigate reports of inaccuracies, you'll also want to contact the CRA directly to report the discrepancy.

As you work on repairing your credit make sure you do the following:

Pay all of your bills on time
Avoid opening any new accounts or buying a large purchase
Pay down your unsecured debt, but make sure you keep accounts open, even if you pay them off
Pay Cash instead of charging on your credit cards

Repairing your credit can take months or a year or more.

If you need help, please contact me and I can give you the name and numbers of a few people who can help you right away to repair your credit so you can be on your way to home ownership.