Buying a home is a major purchase and having bad credit is an obstacle. Your ability to obtain a mortgage is contingent on your credit score, employment, and overall financial picture, often heavily influenced by your FICO score. Your FICO score will influence your interest rate and subsequently your loan payments. However, if your credit isn’t perfect at this time, don’t let this deter your goal of buying a home. Instead, the desire to purchase a home can be a motivator to attend to your credit repair.
In a competitive Real Estate market, home sellers and REALTORS®, will be unlikely to consider your offer if it doesn’t include a pre-approval letter from your Mortgage Lender. Before you make your offer, improving your credit score can greatly affect the interest rate of your mortgage loan and ultimately the cost of your new home. We recommend embarking on a credit repair at least one year before you are ready to make an offer on a property. Talk with your REALTOR® to help you locate a great Lender that will work with you to repair your credit history.
Likely you will want to consider a twofold approach:
1) Dispute any negative information on your report; and
2) Rebuild positive credit and good financial habits moving forward.
The following are tips for improving your credit score:
- Pay your bills on time. Set up payment reminders to ensure you pay all your bills on time. Missing credit payments is one of the biggest contributors to bad credit.
- Reduce your debt. Come up with a realistic plan to reduce any debt you have, whether it’s credit card debt, student loans, etc. Even if you close an account, the debt will still show up on your credit report. If your debt is significant, consider meeting with a financial planner.
- Manage your credit cards responsibly. Credit cards can actually improve your credit as long as you pay your bill on time and keep your balance below 30%.
- Pay off debt instead of moving it around. It’s better to pay your debt on each credit card you have open rather than lumping it into one payment. Paying your debt and managing your debt ratio can actually lower your credit score.
We have many excellent lenders in the Columbus area and The Columbus Team REALTORS® will be happy to help you choose a Lender to help you obtain a mortgage. A lender will take an in-depth look at your household income and expenses, and they can tell you what mortgage payment would be best based on your current debt-to-income ratio.