Afraid of the Unknown – Part 2 Credit Score

While each of the fears or “unknown” factors are real when it comes to buying real estate, there is no way to put these in exact order. Every new or first-time home-buyer faces their own unique set of difficulties. However, this series will hopefully prove invaluable when it comes to overcoming each hurdle until the day you are the proud recipient of keys to your new home.

So, let’s get started with a big issue that keeps many people in the dark –

Credit Score

With no credit score, you will not be able to buy a home. With very low or poor credit, you will not be able to buy a home. On the other hand, you can have a high credit score with a bad debt to income ratio. If this happens, you will more than likely not be able to buy a home.

Let’s clear up two huge misconceptions.

1. Paying large sums of money to a 3^rd party firm will do NOTHING to correct your credit score. Some 3^rd party companies prey on people who do not know that the ONLY person who can FIX your credit score is YOU!
2. Credit scores can be fixed overnight or by next week – this is absolutely NOT true. Sadly, whatever life happened to throw your way that caused your credit score to go in the tank did not happen overnight. It will not get better overnight.
3. What you don’t know won’t hurt you! False, false, false! If you do not know what your credit is, it can prevent you from a number of things like getting a credit card, buying a new car, buying a new house, or even getting a credit line to help pay for dental work or braces for your children.

You want to buy your first home

What do you need to know and how can it help you be prepared when you talk with your first mortgage officer?

Here is the list. While there are no easy answers to bad, low, or no credit, these tips will help you be ready sooner than you think to make the jump from being a renter to becoming a homeowner.

1. Request a FREE credit report. You are entitled to get one free credit report per year from all three credit scoring companies. Here is one option FREE Credit Report.
2. Know what your score is to begin with. If you do not know where you are starting, it will be hard to determine what you need to do to gain the right credit.
3. DO NOT max out credit cards. A good rule of thumb is to have no more than 30% of your credit limit being used at any time. The more and the longer you are over the 30%, the more it will hurt your score.
4. DO NOT go buy more stuff on credit if you want to buy a home in the near future. This includes furniture, motorcycles, cars, etc. every single purchase can drop your credit score substantially.
5. Speak with a mortgage officer here in Cheyenne who can help you with additional plans to get your credit back in line.
6. Be diligent with “fixing” what you have wrong on your credit. If you have collections, past due bills, or judgments, you must get these paid off. Collections will continue to drive your credit score down every month that they are outstanding. Call the collection company and work out a plan that will allow you to pay off your smallest bills first and then use the snowball effect to then pay off the larger ones.
7. CELEBRATE your successes when you pay off a debt or a collection. Set a goal to look at your credit report every 4-6 months and see what differences you have made in your dreams for a new home.

In conclusion, your credit score is nothing to be afraid of. You may have low or bad credit scores, but now that you know what you need to do, determine that you will be like Bob the Builder. “YOU CAN BUILD IT, YES, YOU CAN!”