Updated: Feb 24
"Sorry, ma’am, we can't grant you a home loan. Your credit score is less than 550."
"But I need it badly; please help me."
“Okay, I understand. The only other offer is a hard loan with an interest rate of 28% on a $180,000 home loan. Will that work?
If you have a bad credit score, this may be what you hear if you apply for a home loan. If you have a low credit score you have probably been denied credit often. People with a Low credit score have to live with often being denied credit or being offered higher interest rates to attain loans. For most banks, a credit score between 300-650 lies in the alarming range, and they won't lend you money except on expensive terms.
On the other hand, a borrower with a score above 700 is a shining star for the lender. They enjoy lower interest rates and easily receive loans for automobiles, home loans, credit cards.
Now, you have two options:
(1) take a loan at a high-interest rate and then repay half your salary in the interest, or
(2) improve your credit score
Although most debtors will opt for high-interest loans, you shouldn't.
Credit scores can be improved without any hassle; all you have to do is follow the right tips, make the right decisions and patiently wait for your score to rise. Here are five tips to help guide you in your pursuit of credit repair.
Pull Your Free Annual Credit Report
As you might know, a credit score has five components that have varying importance to the cumulative total. Your payment history counts for 35% and amounts owed counts for 30% of the overall score. Hence, if you mess up the first two components, the remaining three won't make a difference.
However, you are not always at fault for a poor credit score. About 26% people in the US had incorrect information placed on their credit report that adversely impacts their score. This isn’t fair to you.
Every year you should take advantage of pulling your credit report for free from free annual credit report. It contains a list of your debts and whether they were paid or overdue. You need to analyze the report closely to check for any mistakes or false information in your report. A good idea would also be to sign up for a monthly credit monitoring service so you can be aware of any changes made to your credit report or new credit accounts added on.
You need to make sure that you check each credit transaction thoroughly. Is the open date, correct? Is the balance correct? Is the last payment date, correct? Is the creditor’s name correct? Are the number of late days, correct? You want to pay attention to every single thing being reported because what they report can highly impact your credit score. Also, check for any double accounting errors. They are relatively common and may cause a noticeable drop in your credit score.
After you have pulled your credit report and spotted inaccurate information the next thing you want to do is dispute these inaccurate items with the bureaus, collection agencies or the creditor. You can do this online however it is advised that you write your dispute letter and send it by confirmation mailing. You will need to be able to show proof that you advised them of the inaccuracy if you have to sue later on. Once the inaccurate information has been removed from your credit report your score will go up. You may have to dispute several times before they actually remove the false information so be prepared for a fight. But don’t give up. If you do not feel comfortable disputing, seek the help of a professional credit repair company.
Use Credit Wisely
Advertisements have led us to damage our financial health worse than any other. The persuasive credit card offers have lured most Americans into getting multiple credit cards, without even considering what it’s going to cost them and their credit score.
Once you have several cards, your spending power increases, allowing you to spend more than you earn. It seems convenient and the temptation to use the cards become hard to resist, especially when you see something you really want. Although the initial spending may add a flair to your life, its repayment is worse than any enjoyment it brings.
Try to have no more than 3 credit cards at any point in time and at least one installment loan. If you have more than three revolving accounts, try paying off the ones with the highest interest rate as quickly as possible and then leave them alone. Then only use the 3 that you find to be the most beneficial to you and pay these on time each month to quickly begin repairing and rebuilding your credit.
Paying your credit card on time is very important but what is just as important is keeping a low utilization rate. For example, if your credit card has a limit of $100.00 you should be using no more that $30.00 of the limit. This shows that you are not dependent on the card. Which may make lenders think you are heading for financial trouble. You should NEVER use no more than 30% of the limit. This is the utilization rate that plays a part in your credit score. You want to show the lenders that you are responsible and have spending control. If you want to see your score go up, pay down your balance and keep it 30% or less than the limit.
On-time payments are the simplest solution to improving your credit score and help you qualify for loans with better interest rates.
Your credit score is monitored on the length of your credit history and amounts owed. If you frequently miss paying on time, your score will take a big negative hit.
Timely payments make you a less-risky client for creditors, and they will be willing to provide you with a loan. Try to always pay your payments on time, this will definitely help give you an attractive credit score that lenders like to see.
The Bottom Line
Credit repair isn't a one-day process; it will require several months of strict control, and eventually, good results will follow. The tips will ease your journey, and soon, qualifying for a home loan will be a reality.
I hope the blog helped you learn about credit repair; I'd love to hear your thoughts in the comment section.
Foundation Credit Solutions do more than just fix your credit, we also help you take all of the necessary steps to get you pre-approved for a home loan. To find out more about how we can help you get prepared to purchase your dream home book an appointment today.