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Buying A Home With Less Than Perfect Credit

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You’ve finally made the decision that this is going to be the last summer you’ll be a renter. You’ve started to stash away some funds so you can buy your own home at last; but wait, do you know what your credit rating is? Knowing exactly where you stand as far as creditworthiness is an essential step. If you haven’t done so already, you should sign up for a free service like Credit Karma to view and monitor your credit.  Often times consumers find there are things on their credit report that come as a complete surprise to them. Sometimes those things are legitimate like the credit card you got in college and never paid for or a medical bill that’s been turned over for collection, but sometimes, negative information can be an error that will continue to hurt you until it’s addressed.

Buying a home requires having a healthy amount of cash on hand, a solid payment history over at least the past two years, and a steady income. And while you don’t need a pristine score of 700 or more in order to purchase a home, the better your score, the better loan terms you’ll be offered. Your score can affect both the interest rate and the down payment requirement. It can also determine which programs you might qualify for such as your state housing authority, VA, FHA and Rural Development.

If you review your credit and find that you have some “issues”, here are a three easy steps to help you move forward:

  1. If the debt that’s being reported isn’t correct you should dispute it immediately.
  2. If the debt is correct and you owe money to a creditor or collection agency, get those accounts paid off.
  3. If you pay off the accounts but they still show up on your report you’ll need to dispute them as “paid”. You should also ask if the collection agency will remove the debt completely from your report since it’s been paid. This doesn’t happen very often but it’s worth the time to ask.

Paying off collection accounts won’t increase your score but paying down the balances on credit card accounts certainly will.  Keeping balances you owe on credit cards at or below 30% of the available credit limit will give you the most benefit.

What are considered good and bad credit scores? Here’s a quick rundown:

  • 720+ = Excellent credit
  • 680-719 = Good credit
  • 620-679 = Fair credit
  • 580-619 = Poor credit
  • 579 and lower = Bad credit

Regardless of how low your credit score is, remain optimistic and develop a plan to improve it.

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