What’s the Scoop on Credit
It is imperative that a Potential Home Buyer builds their credit to obtain minimally a 620 mid FICO credit score. Our partnering Direct Lenders can pre-approve loans at a score lower than 620 all the way down to a 580, however your record needs to be clean or cleaned up and be near perfect. If you are looking to take advantage of the FREE down payment money program offered through El Paso county, then you will need to bring your score up to a 640. Often times our clients can build up their scores 40 points or more within a few months by following the plans laid out by our Direct Lenders.
Home Lenders use certain parameters when pulling your score, so it may be different than what some other entities might report to you, for example such as with a car dealer. Also be weary of some sites that may state your credit score, it is often times Not accurate as it relates to securing a home loan as they don’t use lender parameters. Its best to pick a good lender, then stick with them and the plan they lay out for you. Jumping from lender to lender will not gain you anything but will actually ding your credit each time it is pulled.
Your credit score indicates to lenders how much of a credit risk you may pose if they allow you to borrow money to buy a home. This is true even for property managers and landlords when they are considering renting a home to you. Even a private Owner Carry lender needs to do some amount of under-writing which would include reviewing the FICO score.
The FICO (Fair Isaac Company) is different than the 3 most well known credit reporting agencies which are Experian, Equifax, and TransUnion. The FICO is the standard that home lenders use to determine credit score. Experian, Equifax, and TransUnion use their own calculations on your credit report to calculate a score that is most often much different than your FICO score. FICO uses an algorithm of 30 different factors on your credit report to calculate a score from 300-850. Going on line to one of the many free credit scoring sites will not give you an indication of what your FICO score is. It will however give you an indication of your credit history and what has been reported.
Your credit score is primarily calculated and weighted as follows:
- 35% Payment history
- 30% Amounts owed
- 15% Credit history
- 10% Inquiries, new credit lines
- 10% Types of credit in use
For anyone that has bad credit and is pursuing an alternative means of buying a home, such as Lease Purchase (Rent-To-Own), it is also imperative to begin credit restoration immediately. The sooner the better! We find that most people coming to us looking to do a Lease Purchase that follow our instruction can obtain financing within a few months and usually much sooner than that. So it is usually best to work on the credit improvement items mentioned below, stay in your current rental or rent a place for a few months, obtain the financing, then buy the home.
Credit repair takes time if you need that done. It isn’t going to happen overnight, it just depends on your situation. So, you should begin working on your credit as soon as you make the decision that owning a home is important to you!
Call today if you would like a 15 minute Credit Review consultation. Call 719-422-9474, it will be well worth your time. Many people that call us can immediately qualify to buy a house, you may be one of them. If you would like to get started, call us or leave your contact info and we’ll get you scheduled for your Credit Review, Contact Us!
Many times potential home buyers fall into one of 3 categories in regards to their credit and what they need:
- Payment history – Derogatory items such as outstanding collections and incorrectly reported items, which could merit pursuing credit repair
- Lack of credit history or Lack of credit in use – Lack of open trade lines that require establishing new trade lines with secured cards
- All of the above.
With our First Time Home Buyer program, one of the main focus points is to help potential buyers prepare for obtaining financing. We also help experienced home buyers that for whatever reason are now in need of assistance to get to a place where they can obtain financing again.
Often times, when an old account is sold to another company, the dates are reported incorrectly or information about that account is reported incorrectly. Many times the same account will show up multiple times due to the account being sold to other companies. If somebody goes through a bankruptcy, it’s almost inevitable that there are items that aren’t reporting correctly on the credit report. Getting items straightened up on the report is where credit repair comes in.
Enrolling in a credit repair program that costs money is most always Not necessary when potential home buyers partners with us. After a 15 minute desktop under-writing consultation over the phone, our direct lenders know enough to instruct our potential home buyers on exactly what to do to get their credit where it needs to be. There has been countless times where someone comes to us with a 550 FICO score thinking it will take them forever to get in to a home only to find that within a few months they are able to qualify by following the instructions provided by our partnering lender.
Should you decide you would prefer to proceed with a credit repair program to help clean up your report, we can recommend a credit repair company locally. The credit repair company will primarily work for you to resolve incorrectly reported items, and even assist with budgeting!
Secured Credit Cards
It has become more and more important to establish active trade lines utilizing secured cards. Lenders are now requiring in most cases 2 active trade lines for the applicant. That is VERY important to be aware of! Obtaining secured cards and using them properly is a great way to raise your scores, particularly when used in conjunction with credit improvement. But with the lenders now requiring 2 active trade lines, secured cards have become a necessity for some people coming to us!
It is very easy for you to go to your bank and get a secured credit card. It is called secured because you are providing the money upfront for what ever secured line you ask for. So for example if you get a $500 secured credit line, pay for your monthly groceries and gas for the month, then pay the entire balance off prior to the billing due date, you will avoid finance charges and build your credit score significantly after only a few months of doing this.
The One-Two Punch
Many people that come to us primarily need to do two items relating to their credit – credit repair and establishing secured lines of credit. We tend to refer to this as the “One-Two Punch”. Although credit repair can be effective in fixing incorrectly reported negative items, if you don’t have the active trade lines to offset the negative and show responsibility with credit, the credit repair will be limited on it’s effectiveness.
There is a 3rd item that you can do that we don’t emphasize too much as it does take a considerable amount of time and diligence to follow through with. You can report your monthly payments such as rent, utilities, phone, cable, and insurance to the 3 major reporting agencies which will show as positive payments. Federal law requires all monthly payments be considered by lenders so this can be part of your credit improvement strategy. Usually by doing the “One-Two Punch” that is significant enough to get your credit where it needs to be in a short amount of time. If you want credit repair and assistance with reporting all your monthly payments to the 3 credit reporting agencies, perhaps paying a company like Lexington Law for $79.95 per month or Trycera.com for $198 to enroll and $89 per month for six months makes sense for you.
By doing credit repair (either yourself or with a company), getting secured credit cards, and by reporting your rent to the credit bureaus (either yourself or with a company), you are giving low credit scores the one-two…three punch and you’re on your way to obtaining financing to buy a home!
The Bottom Line to Financing
The bottom line to getting financed in most cases can be summed up as this:
- Credit Repair – pursue it if need be – (a company may help you do it faster)
- Secured Credit Cards – Obtain at least 2 secured cards or 2 active trade lines
- Report Your Rent to the 3 major credit bureaus. (You can also report other monthly payments like utilities, phone, cable, and insurance)(a company may help you do it more efficiently)
- Don’t be late on any payments – (this includes rent payments and any payments on credit accounts or your car)
- Don’t buy a car until you have bought your house!
By following these 5 main rules, you will be well on your way to realizing the wish of home ownership!