• Ndidi Ihim

How to Repair Your Credit so You can FINALLY Buy your Dream Home

Some of us have been living in their dream house now but in reality, most of us are not. Buying a home is a long process itself and often it requires a huge amount of money not just to buy but also to fix everything before actually moving in. That is why a mortgage is handy when it comes to ticking off this goal.

In credit standing, there are three major consumer reporting agencies (CRAs), or credit bureaus, that mortgage companies use to assess a buyer’s credit rating: Experian, Equifax, and Trans Union. It usually ranges from 300 to 850. A score of 650 or higher reflects good credit history thus considered ideal for mortgage financing applications. If your score falls between 620 and 650, your borrowing capacity will be examined more closely. And if you rate below 620, you may have a credit crisis.

It is frustrating indeed to find out that you have bad credit after preparing everything else just to purchase your dream home. But do not fret because there are ways to repair your bad credit rating so that you can still qualify for a home mortgage with a decent interest rate.

First off, take advantage of the free credit report you are entitled to. Request the credit bureaus. Examine them carefully to see what transactions are lowering your score.

Special note about bankruptcies: A bankruptcy can lower your credit score by 200 points or more. Repairing bad credit following a bankruptcy is beyond the scope of this article.

Charge Offs: If you have any unsettled debts in the past, your creditor must have given up on them and decided to qualify them as bad debts. These are some of the top reasons why your loan application is denied.

How to Repair It: If you have any charge-offs, reach out to those creditors promptly and make settlements to clear off the old debt. After a few months of conventional installments, or if you repay a charge-off debt in full, submit a written appeal to that creditor to change the state of your credit reports.

Late Payments: This can depend on how often does it happen-if it is a one-time thing or a recurring episode.

How to Repair It: If you have a single delayed payment recorded on your credit report, the best thing to do is reach your lenders by telephone to review the situation. Follow up the conversation with a written request to have the isolated late payments excluded from your reports. On the other hand, If you are always late with payments, things will get a little more complicated. You will need to set a pattern of paying on time over periods of months. Once this positive pattern is established, call your lenders (and follow-up in writing) and let them know that you are back on track. With tenacity and perseverance, you may be able to eliminate these score-lowering results.

Inaccuracies/Mistakes: Errors do happen sometimes even in credit reports. These mistakes might include charge disputes that ended in an initial late payment that was eventually reversed. Sadly, the person has to find – and repair – reporting blunders that lead to bad credit.

How to Repair It: Contact your creditor by phone and follow up with a written request that the mistake is rectified. The Fair Credit Reporting Act (FCRA) requires that credit agencies and their information providers investigate reports of inaccuracies. However, you should also contact the CRA directly to report the mistakes.

As you work on repairing your credit rating, there are other things you can do to improve your score:

  • Make sure that you pay all of your monthly bills on time

  • Avoid opening new credit card accounts, including department store cards

  • Work toward paying down your unsecured debt, but keep accounts open even if you pay them off

  • Pay cash for the things you need instead of charging them

A score below the 620-mark will not necessarily mean that your loan will be disapproved. This just means that your mortgage will take a longer time to process and there might be higher interest rates and not-so-good terms. Another option can be reaching out to your real estate agent to ask for referrals to high-risk lenders.

Repairing bad credit is not an overnight process so it is important to take care of it right from the start. Waiting is also a good option so you can have more time to improve your score before buying a home right away.

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