How To Raise Your Credit Score For A Home Loan
If you've ever been denied for a home loan, or dream of owning your own home but can’t due to lower credit, I can sympathize with you. Rest assured, there is hope! In this blog post we will go over the best and fastest ways to raise your credit to an acceptable level to obtain your very first home loan!
If you haven't read our blog post yet on "What is my credit score?" click here to take a look.
THE BASIC WAYS TO RAISE YOUR CREDIT FAST
Briefly, these are a few ways to increase your credit quickly, and dramatically. We will cover these in depth:
· PAY OFF COLLECTIONS
· BRING ACCOUNTS CURRENT
· GET A SECURED CREDIT CARD
· LOWER DTI
· CONSOLIDATE DEBT
· OPEN REVOLVING ACCOUNTS IF NONE EXIST
Before you begin, you should obtain a copy of your credit report.
PAY OFF COLLECTIONS
If you have not paid a company, medical bill, credit cards, or stopped paying a revolving debt, you might have a collection. Follow these easy steps to take control and wipe these collections off of your account.
1.) Review a copy of your credit report
2.) Work with the companies directly and not the collections company. Again, do not work with the collection agency! Why? After you pay a collections company, they will not remove this from your credit report for seven years (unless it was proven to be fraudulent).
3.) Make sure each companies puts it in writing they will remove this account from showing up on your credit report and ask the collection company to remove it from their file.
BRING ACCOUNTS CURRENT
If you have any late accounts open, bring them current immediately or contact the company to have them assist you in your late payments. You may be able to set up a payment plan without reporting you to a collection agency or credit bureau. You will be surprised how many companies will work with you if you tell them your situation.
GET A SECURED CREDIT CARD
A secured credit card works like a normal credit card, except you have to put the money down up front. For example, if you give your bank $500, they will give you a $500 secured credit card. After a year of using this, paying on time and not keeping the card maxed out; they will normally refund you the $500 and increase your credit limit. Pro Tip: leave the balance on this card very low - this will help push your credit limit and credit score higher.
LOWER DTI (DEBT TO INCOME)
If you have a lot of revolving debt, like credit cards, lines of credit or car loans, pay them down! After you've run your credit report, you can see where your DTI is. Typically under 35% will yield an ideal credit score. Pro Tip - don't push this too low, as credit bureaus like to see a prospective client using credit responsibly.
If you have high interest credit cards or student loans, you can consolidate debt into one place. Typically these are shown as a personal line of credit (revolving account) and may have a lower interest rate. I've had clients open these and consolidate their debt and see immediate increases to their credit score.
OPEN REVOLVING ACCOUNTS – If You Don’t Have Any Yet
If you don't have any revolving accounts, like credit cards, lines of credit or a car loan, your credit score may be low because there is no history. Open a secured card, or try to open a normal credit card. The new revolving accounts and available credit will help boost your score. Be careful not to open any of these too close to applying for a loan as this could be an issue for mortgage lending companies.
There's a lot of moving pieces here, but if you follow this guide and the steps within, you'll most likely be within 6 months of obtaining a home loan.
P. S. If you're struggling to come up with the money to pay down debt, consider working a second job. If you're committed to buying a home, you may have to make some initial sacrifices!