Fixer Uppers are popular in the real estate market. You know the properties I’m talking about – they’ve got a lot of value, but they’ve seen some hard use and wear throughout the years. Underneath it all, they’re structurally sound, and even in their worn condition, the underlying beauty shines through. If I really stretch the analogy, that description could fit the credit history of many of my clients. Their income and earnings show that they are certainly in a position to afford the house they want to buy – but their credit history may make getting a mortgage difficult.
A few years ago – even last year – banks and mortgage companies were overlooking the little dings and dents on the credit reports of applicants. They bent over backwards to approve people and devised new types of mortgages to accommodate those who barely met the requirements. We’re seeing the result of that now, in a rising tide of mortgage defaults and foreclosures. The reaction by the lending community has been to tighten their requirements again. It’s more difficult now to get a mortgage with iffy credit than it ever has been.
That doesn’t mean that you should despair if you’ve had credit problems in the past. It just means that you’ll need to do a little work to clean it up before you apply for your mortgage. Here are some tips that I offer my clients with fixer upper credit reports. They’ll help you get your credit in shape to qualify you to buy your dream home.
1. Get your credit report. From all three reporting agencies. Before you apply for a mortgage. It’s free.
The mortgage company will order a credit report and credit score from one or more of the three major credit reporting agencies – Experian, Trans Union and Equifax, and they’ll base their decisions on that score. It’s important to know what they’ll be seeing before they see it, and to understand what they’re looking for when they read it.
You’re entitled to get a copy of your credit report for free once a year from EACH reporting agency. The easiest way to do it is online at www.annualcreditreport.com. If you can provide a few simple bits of information to verify your identity, you’ll get instant access to the credit reports that you request.
2. Correct errors and make notes.
One of the major reasons for getting your credit report is so that you know what needs to be fixed. Believe it or not, as many as 25% of people who ordered their credit reports discovered errors of some kind in them. Those errors ranged from listing an address at which they’d never lived to credit card accounts they’d never held. If you find anything of this sort on your credit report, notify the reporting agency IMMEDIATELY to have it removed. The agency will want you to prove your assertion, but they do work hard to ensure that the reports they issue are accurate. Be sure to have them note that any erroneous information that they can’t remove immediately is being disputed.
Speaking of disputes, those are among the most common types of errors you’ll find on your credit report. By law, creditors are not allowed to report any charges that you’re disputing as delinquent. Again, contact the reporting agency to have any charges that you’re disputing from your credit record.
3. Lower your debt ratio.
One of the biggest determinants of your credit score is your debt to credit ratio. Creditors are looking for people who are not already buried in debt. If you have several high interest credit instruments – credit cards, home equity loans, car loans, store credit cards – with high balances, do what you can to knock those balances down. The lower your debt in relation to your available credit, the higher your credit score will be.
4. Negotiate with creditors.
If your credit report shows legitimate late payments or outstanding balances on credit cards and other accounts, your first order of business should be to clear those up. Contact the creditors and work out payment arrangements with them – and be sure that reporting the arrangements to the reporting agencies is a part of the arrangement. ASK how it will be reported, and angle for “paid in full” rather than “settled” or any other status that suggests the account was settled for less than its full amount. Have them send or fax you a letter confirming this. It will help should you have to explain to the bank.
5. Balances down – payments up.
If your credit report isn’t what you’d like it to be, my best suggestion is to postpone your mortgage application while you work on repairing your credit. Your most recent history is the most important in the eyes of the credit reporting agencies and lenders.
Sit down with your account books and work out a budget that will allow you to make payments on every single one of your credit cards and accounts every single month. There are some very effective methods that can effectively slice away your debt profile in a matter of months. The key is to make sure that you pay every creditor on time every month, and that your regular, on time payments are reported to the credit agencies.
Notice the repetition of those words – on time. Making your payments on time is vital to repairing your credit report. Each month that you make all of your payments on time, you’re building another block of “good credit risk” into place. Generally, most creditors will be willing to report your payments to the reporting agencies once you’ve made four to six months of on time, regular payments. A single late payment can mean you’ll have to start all over again.
6. Beware of companies claiming they can fix your credit.
Most are not what they portray. You are the best one to repair your credit by paying close attention to your credit reports, your budget and timely bill paying. And remember repairing your credit is not a “quick fix”, but it is a worthwhile one.
Just like the gem of a house that will shine with just a little elbow grease, your credit report can be repaired until it shines like new. All it takes is a little belt-tightening and attention to detail, and before you know it, you’ll be in the market for a house.
Date: 2007-09-17 11:51:14