You have goals for the coming year. Hopefully, some of them are financial. For instance, improving your credit score so it stops embarrassing you. Paying off debts with ugly interest rates. And saving some money for actual emergencies. (Vegas weekends do not count as emergencies, just so you know.)Click to see today's rates (Apr 30th, 2017)
There are several ways to improve an ugly credit score, and some work fairly quickly. The methods you use depend on why you have a bad FICO in the first place.
This is what's called a "thin file" in mortgage underwriting. Guess what? If your score is low because you have little credit history, that's a lot better than having one with a bad history.
Lenders are required to consider your application and examine the accounts that you do have, even if you have no credit score at all. They can hire a credit reporting agency to pull a non-traditional or manual credit report, showing accounts that normally don't report to credit bureaus.
These might include utility payments, rent-to-own furniture, apartment leases and personal loans.
If you make a regular (not automated) deposit to savings, and can show that you've been doing it for some time, that may be counted as a evidence of sound financial management.
An easy way to improve your profile is, of course, to get a credit card (not a secured card or debit card) or two with a low limit. Use it for small purchases at grocery stores or gas stations, and pay that balance off, on time, in full, every month.
Finally, if you have nice relatives or close friends with excellent credit histories, you may be able to "piggy back" on their credit histories. Being listed as an "authorized user," gets their credit card account added to your history -- potentially improving your score.
You can do this without actually using the card or even knowing what its account number is.
If you had some bad experience in the past -- missed payments, bankruptcies, auto repossessions -- it will take time to put them behind you.
Fortunately, the older an item in your history it is, the less weight it carries, and the lower its impact on your sore. The flip side is that everything you do properly right now has a larger impact.
You can overcome a bad past in 12 months or so (depending on how stinky your credit history is) with on-time payments and careful debt management.
FHA, for instance, wants to see evidence that you've made on-time payments and had no derogatory entries in at least the last year before you apply for a home loan.
Like the consumer with a "thin file," you too may benefit from friends and family with excellent credit. Becoming an authorized user on their accounts is likely to improve your FICO, too.
The challenge will be finding someone who trusts you enough to do this if you've already burned every bridge you have.Click to see today's rates (Apr 30th, 2017)
Why do you use too much credit? Are you spending more than you earn? Do you buy things you don't need? Is your therapist's first name "Retail?"
If your spending is out of control, there are red flags on your credit report. "Reason codes," which explain the biggest factors comprising your score, might include:
When you use too much of your available credit, and carry credit card balances, it sends up a red flag for lenders. This "utilization ratio" is 30 percent of your credit score!
Underwriters ask how can you possibly overspend month after month when your earnings don't keep up?
If you want to go the DIY route to fixing your finances, you have options. A home equity loan or personal loan can clear the high-interest credit card balances and lower your credit utilization ratio. Understand, though, that the debt doesn't go away. You still owe the money. Pay if off, don't run up more debt (85 percent make this mistake so be very, very determined and careful), and you'll make it.
If you can't cut your cards up and leave them alone until they're paid off (and you know who you are), get thee to a non-profit consumer credit counselor. This person can work through your expenses and income, find ways for you to save, and teach you to budget.
You may be offered a debt management plan (DMP).
A debt management plan may get you lower interest rates and payments, helping you get debt-free faster. However, make sure the creditors won't report you paying "less than agreed" on your credit history; that could actually reduce your FICO score.
Make sure the plan will get you out of debt within five years. If not, consider bankruptcy; your problems may be too much for an out-of-court solution.
Stick with your plan. Concentrate on paying down your credit balances. As your balances become smaller, the ratio between the amount of credit used and your available credit becomes lower and your FICO goes up.
Set your bills up to be paid automatically, on time. You'll accumulate an on-time payment history (on time, for credit reporting purposes, is within 30 days of the due date).
Check your credit history and score. Then look for programs to help with down payments, closing costs and homebuyer education. A good mortgage lender can point you in the right direction.
Today's mortgage rates depend a lot on your credit rating and down payment. Suffering from any of the above problems might not prevent you from buying a home, but improving your FICO score will almost always save you money.Click to see today's rates (Apr 30th, 2017)
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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2017 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)