Credit Tips
So you want to buy a house, but your credit isn’t quite there? This is the case with many people, and it pains you watching that money get thrown away in rent. The good news is you can change that, but it can take some time and effort.
If you open your browser and search for credit repair you are inundated with companies offering to help you for a large upfront fee or monthly fees. DON’T DO IT. Everything you read below will help improve your credit score the same way the credit repair companies do, but for FREE. Depending on your score and the negatives hurting your score, you could be ready to buy a home in as little 6-12 months.
- Step One – What is my credit score? You can get your credit score and report FREE from CreditKarma.com. You can also get annual free credit reports from www.annualcreditreport.com, it is the official government site. When getting your credit report, be sure to do it where you have access to a printer, so you can print off a copy and refer back to it.
- Your report will identify the main items that are impacting your credit. These are usually things in collections. If your collections are medical debt, some lenders are starting to overlook them more and more if they are not large amounts. Start working on paying down or and paying off anything in collections.
- Credit reporting errors are so common that 1 in 5 people have errors on their reports. Disputing your collection accounts can also help fast track some items off your credit history and you do not need to pay anyone to do it. You can dispute anything on your credit in the links below, but if the same error is on each report you will have to dispute it at each one. Additionally, for anything you dispute the collection agency has 30 days to prove the debt is yours, if they do not (or cannot) then the credit agency is required to remove it from your credit history.
o Equifax: www.ai.equifax.com/CreditInvestigation/home.action
o Experian: www.experian.com/disputes/main.html
o Transunion: www.dispute.transunion.com/dp/dispute/landingPage.jsp
In many cases you can also settle old debts for less than you owe, again without paying someone a fee to do it. Credit agencies show your credit history for 7 years, if you have old collections close to 7 years ago, let those fall off because if you pay on them it becomes a recent item again, which then reports for another 7 years. Debt settlement works best for debts that have not been paid AT ALL on in a long time. Here are some tips (let’s assume the old debt is $1,000):
- Save up around $500 prior to calling them.
- Call them up and tell them you have $500 to settle the debt it full. Do not tell them you are trying to buy a house or clean up your credit. You will likely have to go back and forth with them several times over a few weeks to get the deal you want. Keep telling them the following things:
o “I only have $500 to settle this in full.”
o “I have other collection accounts to settle as well, if you don’t take it I’ll move on to the next one.”
o “No, I will not make monthly payments, only settlement in full”
o “I am also considering bankruptcy, in which case your company would get NOTHING.”
o “I have the money in hand now, and you will have the money in 3 days once you agree to accept $500.”
If you can finally get them to agree to a settlement DO NOT GIVE THEM MONEY OVER THE PHONE. Tell them they MUST mail you a letter with your name, address, and account number on it stating that they will accept your $500 as payment in full. Only when you have this letter do you send them the money by CERTIFIED CHECK only. If you give them a credit card number or mail a check you open yourself to the possibility of them taking more money from your account then agreed on since they have your account number.
Additional Credit Building Tips. I’ve talked about ways to deal with collections, now let’s look at other ways you can also build your credit.
- Ask your landlord to set up online tenant payments with Cozy.co (not .com). This is a property management site for landlords. Your payments are treated like an installment account similar to if you were paying on a vehicle loan and reports to one of the credit agencies. I personally use this payment service for our rentals to help our tenants with credit building.
- Get a credit builder CD. They can be harder to find, but you are basically depositing a fixed amount of money in an account once a month for a year or two into a CD account. It acts like an installment account on your credit history, and the best part is it’s a forced savings account for you. After the term, the money is yours, plus some interest.
- Keep your credit utilization low, and no more than 20-30% of your credit limit. If you have your credit card maxed out it hurts your credit.
- Get a secured credit card from a bank or credit union. With these, you deposit a balance in advance to secure it. Then only make smaller charges on it each month, and pay it off in full each month.
- Become an authorized user on a close family members credit card account. The family member has the ability to set the limit to a low amount. Even if they get you a card, you don’t always even need to use it at all, for some banks it can just be put in the drawer and not used, but still helps your credit. However, make sure your family member is good about paying their balance, or it could hurt you. Also, not all banks report to the credit agency for authorized users, so you need to do some research before going this route.
I hope these suggestions and ideas have added some value to help you meet your goals. I would be more than happy to look at your credit report with you and give you a more in depth advice based on your situation. Additionally, we can consult with some of the lenders I work with to narrow down what the most important credit issues are to work on in order to get you APPROVED. Please Contact Me if I can be of service to you.