Your Credit and How to Improve a Low Credit Score

Getting Your Credit Report

One of the first things you need to know before you consider buying a new home is how good your credit score is. You are entitled to one free credit report every year under Federal law. You can request your free report going to a site like freecreditreport.com, but you may be forced into signing up for a trial credit monitoring service you don’t necessarily want or need just yet (and there will be an associated fee if you don’t cancel within the trial period). Instead, I recommend https://www.annualcreditreport.com. Note that you can request this report by phone or mail as well. Once you have your report, you can roughly determine if you are in need of help or able to obtain a loan already.

Generally, a score of 650 or higher is required to take out a conventional loan.

So, what do you do if your credit is less than ideal or not exactly established (as is the case with many young folks out there)? Well, the good news is, you may still qualify for a loan under certain FHA guidelines, USDA guidelines, or RHA guidelines. These loans are specifically geared towards helping first-time homebuyers find affordable housing. Check out our Loan & Funding Options page for more details about each of these to see if you qualify.

Veterans with low credit scores may also still qualify for home loans and mortgages, often without needing a down payment.

 

What if Your Credit is Still Too Low?

So, you’ve looking into your loan options and it seems your credit score is still too low for you to qualify. Well, then before you begin hunting for that perfect new home, you’ll need to improve your credit rating. Here are some fast and easy ways you can go about doing it:

1. Take out a credit card.

If you don’t already have a well-established credit history, you’ll need to find a way to show lenders you can be trusted with a large credit line. There’s no need to go crazy with it. The point is that you use it once in awhile and make timely monthly payments on your balance. You can also apply for a credit card that only allows you to spend what you have already deposited on the card with your bank. Just make sure that the card you choose is a reputable one that reports to the credit bureaus.

2. Pay your balances down.

If you already have revolving accounts (i.e. credit accounts, cards, etc.) then pay them down or off completely. This will show you have a desire to make good on your debts. Paying down installment accounts (student loans, car, etc.) helps too, but the difference it will make in your score is less dramatic. In general, it will also show more fiscal responsibility if you keep your balances low after paying them down.

3. Check your credit report for mistakes.

The last thing you want to do is suffer because there’s a mistake on your credit report. Check your name, your previous addresses, all of the accounts. Do they make sense to you? If something doesn’t look right, address it immediately by contacting the account holder or the credit bureaus. Resolving a mistake on your credit report can take a long time to clear, so the sooner you start, the better.

4. Make all of your payments on time.

The longer you go without a late payment, the better off you’ll be. If you’re the kind of person who has trouble remembering to make payments, set up recurring payments with your bank. Your payments will automatically be debited from your account each month, without you having to physically make payments yourself. Of course, you’ll have to have money in the bank when the debits occur, so keep this in mind or you might end up with overdraft charges with your bank.

5. When all else fails, contact an expert.

If you’re struggling to make payments or manage your debt, it may be time to call in an expert. Look around in your area for a reputable credit counseling agency. They will usually be able to set you up with a payment plan that is affordable, so that you can get you debt under control. Working with a credit counseling agency may not preclude you from buying a home, but you’ll have to work with the agency for a decent amount of time (and get their approval) before you can qualify.

Hopefully, this information was helpful to you. Remember, if you ever have any questions or comments about an article, you can always contact us.