I would highly recommend looking at your credit and financial status about a year to two years before you want to buy a house. This is especially important if you have bad credit or credit that is need of some repair. Keep in mind that the better your credit score the less you will be paying in interest rates and points. This is very crucial as it can save you literally tens of thousands of dollars over the lifetime of your mortgage loan.
If you pull your credit and discover that you have a few flaws and blemishes on there do not despair, there are ways to help repair the damage. While there is no legal way to take bad or blemished credit and suddenly make it sparkle as some companies claim, it is possible to improve your overall credit appearance. Improving the appearance can be very crucial to lowering your interest rates.
While many lenders only look at credit scores, they are rare. Most lenders especially for a house will personally look over the credit report to see why your score is what it is. Most lenders are also experienced enough to know if your credit score is bad because of negligence, or because you have been working on cleaning up your credit. Wait, did I just say they would know your score was bad because you have been cleaning it up? Yes, it is true that making an old negative account active again by paying it off or making payments on it can temporarily reduce your credit score.
Keep in mind that while your score may fluctuate, you never want to approach lenders with unpaids and collections on your credit file. Do what you can to get those paid off. Call and write letters to the companies that you owe money to and ask them for a settlement offer. If you are feeling brave offer then a settlement amount, usually somewhere between 50%-70% will achieve an acceptance. This is great because you can save money, still clean up your credit and happily move along to the next company.
Want to know a nice little trick to remove it potentially after you have settled the account? It’s simple, once the account has been paid, whether in full or due to a settlement offer because you were able to work out a great deal, just simply write a dispute to the credit reporting agencies stating that the account has been paid, and the company has failed to update your credit report. It does not matter that you just paid the account the day before, you can still send off the dispute.
It may take a while before the dispute process does any good. I had three disputes come back uneventful, and make me frustrated, however disputes number 4 and 5 both came back with 3 and 4 fewer entries than they had when I first filed the dispute. The reason is simple, once the companies have their money to settle the account they are less concerned with making sure their information stays active on your credit file, which means if they do not respond to the dispute in the correct amount of time, they lose and you win. The entry is removed completely from your credit file.
This will take a while, at least 45-60 days per dispute cycle that you complete, however if your still busy paying off different negative items and making settlement offers you should have several new disputes to file each time you file, plus add the items that you have previously disputed that are still on your file. It is a numbers game, most companies will respond the first several disputes you file because they want to keep their information on your file, however after numerous disputes they tend to give up and spend their time and energy pursuing more money instead of keeping their information on your file, which means you ultimately win.
You must remember that when purchasing a house or even a car the smallest changes to your credit file can cost you or potentially save you thousands of dollars. You must be careful and persistent to really see the benefits and enjoy the savings. Would you rather have a $500 a month mortgage or an $800 a month mortgage, those are a good example of the differences between interest rates. Simply those with blemishes on their credit files will pay a lot more interest over the lifetime of their loan, and each month as their monthly payments are due they will pay higher payments than their counterparts with better credit.
It is always wise to give yourself plenty of time to work on your credit file before seriously house hunting. If you are like me however, it helps to start looking so that you have a true motivation to help you stay on track and keep working away on your credit. It is not a simple overnight fix, and it is not going to take the worst credit in the world and suddenly make it perfect and sparking but with some work and effort, it is possible to greatly improve your credit. Before doing this the best credit card I could get was a 100% secured card, with only a $300 dollar limit, nothing more, and that was attached to a whopping 24% interest rate.
However, with diligence and determination I have spent the last year working hard on my credit and have managed to clean it up enough to receive not 1 but 2 small completely unsecured cards with only 9.99% and 15.4% interest rates. Which is a huge improvement over the previous card offers I was receiving. These small little credit cards will be a great help to show more positive items on my credit file which always helps as well.
Another idea that we did was we went to our local bank and applied for a small loan. The amount for the first was only $500 and the second was $1,000. So they were small, however we made sure the payments were always on time, and were paid promptly. This once again is two more positive entries on my credit file, so along with the recent paid off accounts, the accounts the fell off from the disputes, and the new credit cards help prove to lenders that I am serious about being a responsible consumer.
I wish everyone the greatest luck with purchasing a house, and I sincerely hope that you find that perfect home and are able to truly enjoy the happiness of being a homeowner. I also hope that you are able to save thousands of dollars off your interest rates and spend the money putting in the wonderful new deck, or killer hot tub.