First-Time Home Buyers
How to Improve Your Credit
Lenders use your credit history to evaluate the likelihood that you'll be able to make your mortgage payments in full and on time. But poor credit doesn't mean you can't buy a home. In fact, 1stAvenue Mortgage has helped many people just like you buy their first, second and even third homes.
Steps you can take:
Your overall credit history is important, but mortgage lenders are particularly concerned with your more recent record. A full year's worth of reduced debt and timely payments can make all the difference in being able to get a mortgage. If you start today, it's possible that you can improve your credit enough to buy a home relatively soon. Consider the following suggestions:
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Get the facts. Don't rely on your memory about which bills you've paid and when – lenders won't. They'll obtain a complete report of your credit and loan payments over the last several years. You should do the same by contacting the three main credit reporting companies:
- Equifax (800-685-1111, www.equifax.com)
- Experian (800-397-3742, www.experian.com)
- Trans Union (800-888-4213, www.transunion.com)
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Fix it. Credit reports aren't always accurate, so review yours carefully. If you spot any errors, write a letter explaining what should be corrected and why. Include any relevant backup material to support your claim, such as a receipt from a former creditor showing that you've paid a debt. Send the materials to each credit bureau by certified mail with a return receipt. Keep a copy of all such correspondence! Be persistent but polite in following up to make sure the corrections are made. You can also send letters that add explanatory information to your credit file – for example, your success at meeting a reduced payment schedule.
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Negotiate. Many creditors will consider revising the terms of your debt or even accepting a portion of the full amount. Write a letter (and keep a copy) explaining your situation and offering a partial payment – perhaps 40% of the amount you owe – or an extended payment schedule. Make sure you receive a written response and send the information to the credit bureaus. If a creditor accepts a partial payment, make the payment, get documentation and send it to the credit bureaus. If you receive a reduced payment schedule, be sure to pay in full and on time until the debt is paid off, then notify the credit bureaus.
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Stop using credit cards! If you want to buy a home, you need to reduce your debt. That's hard to do when you're adding to it every week with new purchases. Take your credit cards out of your wallet. Every time you're tempted to buy something on credit, ask yourself whether having that item is more important than buying a home.
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Do better – starting NOW. You must begin paying your bills on time, which means making at least the minimum payment by the requested date. Gather all your bills, add up the minimums and commit to paying them. If you truly can't, seek advice from a credit counseling service. Many experts recommend local housing agencies or non-profits such as the National Foundation for Credit Counseling (www.nfcc.org) that provide no- or low-cost advice. I may also be able to recommend other credit counseling resources.
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Find More Money.
For the next three weeks, record every penny you spend and what you spend it on. Then take a hard look at where your cash is going. You might be surprised at how much relatively “easy money” you find. The $5.00 you spend on premium coffee every weekday adds up to more than $100 a month. Would a thermos from home do the job? How about bringing your lunch to work most days instead of buying it? Making a few choices along these lines can help you discover hundreds of “extra” dollars a month that can make credit card balances disappear much more quickly.
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