Tuesday, April 25, 2017
By Jonathan Gunnels
Getting your Credit in Shape- First Time Home Buyers

          Buying a home for the first time can be one of the most stresssful things that one can do, but it doesn't need to be.  Most of what makes the process so stressful is not knowing what needs to be done in order to be ready for the purchase.  While there are many things to consider, one of the most important is your credit.  Many buyers shop first, and then are dismayed to find that a credit issue may keep them from their dream home.  I suggest getting your credit in shape prior to looking at properties.  In the following paragraphs, you will begin to learn about what needs to be cleaned up on your credit.  There are also some helpful tips on how to make simple adjustments that can help with loan approval.

          The first step is to take a look at your FICO score.  This score basically sums up your payment history on debt, and your likelihood of properly managing debt.  Over many years, they have compiled payment history on you, and they use a calculation to help banks determine your credit worthiness.  This is where making regular payments, and debt to credit ratios matter.  Another thing to consider is that the calculation of the FICO score is changing.  Simply making minimum payments on credit card debts could actually hurt you.  Consult with your loan officer to see if an adjustment could boost your score.

          When pulling your credit, you will go to the "Big Three"(Experian, TransUnion, and Equifax).  Each company compiles information in different ways, and could have slightly different credit histories.  These credit histories are detailed accounts of your business relationships.  For a free copy, you can go to www.annualcreditreport.com, but it is important to note that the score is not free.  If you would like a"tri-merge" report score, then you will have to purchase one online.  You can also get one through your credit card companies as well.  The key at this point is to go over your credit report to check for accuracy.  Pay particular attention to "adverse accounts".  If you have trouble understanding the report, your lender can help determine which accounts are causing the most harm to your score.

          There are sometimes mistakes in your credit report.  Do not worry! In fact, a Fair Trade Commission study in 2013 found that as many as 5% of credit reports contained errors that could negatively effect credit scores. If you see an error in your report, the first place to start is to send a dispute letter to the credit bureaus.  They will research the matter, and make the necessary adjustments.You can also contact the party that provided the incorrect information, and ask them to make an update with the credit bureaus.  Once this is complete, you should see a bump in your score.  Just know that these things take time, so patience is the order of the day.

          Sometimes, we simply make mistakes.  A forgotten payment here or there can wreak havoc on a credit score.  You may be able to call the creditor, and ask that they remove it from your report.  If you have a good payment history, many creditors will work with you.  The creditor knows that things happen, and their main concern is keeping paying customers happy.  This strategy will not help in situations where late payments are common, so paying on time is a must.

          One other possible option is to increase your limits.  You heard that right, actually increasing your limits can also help.  It is important to discuss this with your lender to determine your best course of action.  If your debt-to-credit ratio is the problem, then this may be an option for you.  Of course, the best thing to do is to simply pay the balances down.  Credit card interest can be very high, so paying them off is always the best thing to do.  If that is not an option, then asking for a credit increase will lower your debt-to-credit ratio. Please remember not to rack up additional debt just because you now have a higher credit limit.  You ultimately want to elimitate as much credit card debt as possible.

          The last thing to remember is not to panic.  Sometimes the best thing to do is simply to adjust your spending habits, and give it time.  A damaged credit score can reflect our struggles, but we need to remember that it is not the end of the world.  Turn over a new leaf, and begin to pay on time.  A good resource today is to set some hard to remember bills on automatic draft.  Given time, your past struggles will be in the rear view.  Just remember that a home of your own is in your future.  Keep moving forward!


Jonathan Gunnels