I’ve been selling real estate for years, and through that time I’ve learned a lot of tricks and tips to raise credit scores. You need good credit in order to get a loan to buy a house. Some loans are more lenient on the amount of debt you can have and on the amount of down-payment you need. Check for another blog post to give you basic types of loans called “Cash is King”. Let’s get started with credit scores because this is the place to start.
- PAYMENT HISTORY (35% of credit score): Ok, so first off….if you have an old “collection” on your credit report, do whatever you can to pay that off first and make sure you have the letter that says it’s back to a 0 balance. One little $100 collection can drop your score 50 or 75 points in 2 seconds flat. PLUS the longer they are on there, the more damage they can do. It happened to most everyone at some point, so get those off your credit first. Some companies will let you set it up so your bank will make an automatic minimum payment for you, take advantage of this when you can. Put it on your calendar to pay bills every 21 days or so. The credit card companies move the due date around every so often, I think to trip us all up so try to pay every 3 weeks or check less than every 30 days. The higher your credit score, the lower your interest rate should be. You can re-negotiate interest rates as long as you’ve been paying the minimum payment on time.
- AMOUNTS OWED (30% of credit score): Credit scores go up once you get to less than 50% debt on your total credit, but they really zoom up once you hit less than 30% of your credit. Never ever ever ever ever close out an account once you have credit. You can pay it to 0, and then periodically charge something on it so the creditor won’t close it, but then never close it out yourself. Sometimes they will lower your amount of credit if you don’t use it once every few months or so. So I just charge like $30 or something, then pay it off every once in awhile. You want as much credit available to you, but you want to use as little as possible. So, on a credit report it might say someone has 3K available to them in credit, but they should use less than 1K or the score drops considerably. If you have your cards maxed out, the score drops wayyyy down.
- LENGTH OF CREDIT HISTORY (15% of credit score): Oh man, here’s a great tip! Because part of your score is based on length of credit history, if you can get on a credit card with someone who has good credit and even better, on a card that has been open for a really long time with great payment history…..your score will zoom up. HOWEVER, with the good comes the bad, so the other persons credit could drop a bit because now they are attached to you. So you want to make sure you disclose that, and that it’s someone with strong credit. If they have strong credit, over 750 or so, it shouldn’t affect them for very long or very much.
- MIX OF CREDIT (10% of credit score): Having different types of accounts is also weighed in the FICO score: home loan, student loan, auto loan, personal loan, you get the idea. HOWEVER, don’t mess with this one too much. If you have 3 credit cards, that’s fine. If you don’t have 3 credit cards, DO get minimum 3 credit cards: Visa/Mastercard NOT store credit like Sears/Home Depot JCPenney type. The store cards are the first to report late payments, they charge the highest interest rates, and they don’t give you as much clout in terms of credit score as a Visa or Mastercard. The older a person is, the higher their credit score can usually get. This is because the longer you have a credit card , the more worth the FICO score gives the credit. Anything less than 3 cards and your score will stay low because, even though you don’t have debt, you also don’t have credit. See how that works 🙂 Go ahead and apply for cards all at once, your score doesn’t drop as much if you are applying at the same time to different companies. I believe it’s over a 14 day period, but go ahead and do it all at once. Got it?
- NEW CREDIT (10% of credit score): The longer you have credit, the more it helps your score. This is why people that are older are usually the ones that can get their scores above 800. This is true for Visa or Mastercard type cards, not store credit cards like Macy’s etc.
Rent doesn’t count against you with debt when you are buying a house, so it would be pretty easy to get a loan for you once we clear up your credit. Even if we can get it to 620 there’s a certain loan program in Detroit that works for scores between 620 and 640.
My lender is great about helping you figure out if you are ready to buy. I can even have my loan guy contact you if needed, I know it’s hard for me to make that initial phone call or text or email on some things. But I got your back solet me know what you need help with and I’ll be there! I’d love to help you buy a new home.