My husband and I were in the same boat when we got married 6 years ago, and my husband had a bankruptcy 3 years before that. Now, I'm not a financial wizard or anything, but I studied credit web sites a bit and I was able to pull my husband's score up from a 520 to a 710 in a year by doing a few simple things. These are just suggestions and not guarantees, but they worked for us.
-THE most important one, other than paying on time, is paying MORE than the minimum expected on your credit card balance. Even if it's only $10 extra, if you do that 3 months in a row your credit score will start jumping by as much as 20 points each month, after the first 3 months. What credit score companies REALLY like to see is if, say your minimum payment is $25 and you've been paying $40 a month, if you can jump that up to $100 or even $300 for just one month, they could bump you as many as 50 points on your score. It tells them you are seriously trying to get rid of the debt.
-Secondly, they also want to know that you are using your credit, so don't stick your cards in a drawer. You have to buy gas every week, buy at least one tank with your card a month and add the cost of that tank to your monthly payment, which will make you look even better to them.
-If there are any discrepancies in your credit report, dispute them. You can dispute them with the credit reporting company website. Now, when it is resolved, make SURE you get a letter from the company that it is resolved and forward it to the reporting company. A lot of times companies won't bother to report the clearing of a debt to a credit reporting company and the first they will hear of it could be from your copy.
If you need a lender, I have one that does loans for low credit scores, even 520. Send me an email and I'd be happy to put you in touch with him.
Oh, and if you need help finding a place, I can help with that too!
I'm licensed in DC, MD and VA, so I can help no matter where you want to look. You would be surprised at what's out there in the lower price ranges.
Buyer's and Seller's REALTORÂ®
Keller Williams McLean
Unsecured debt is only an issue if you default on it or aren't making payments on time... if you pay on time then unsecured debt is fine. It's difficult to advise what you should do with it not knowing exactly what happened (charge-off, collection, judgment, etc.), when it happened, what the trade line has been doing since (adding random late payments? absolutely nothing?), what type of debt it is, etc.
You should get copies of your credit reports from https://www.annualcreditreport.com/cra/index.jsp and go over them with a loan officer to determine what the best course of action is for each item - pay it, leave it alone, settle it, pay-for-delete it, etc. so you don't make the situation any worse. A lot about improving scores is making sure you have enough positive payments reporting each month, student loans will help out but a few credit cards are good to have too. If you haven't already read up about what impacts your scores then there is library of free, well written articles at http://www.myfico.com/CreditEducation/
How to fix your credit history and score
1) Identify mistakes and errors in your credit report
2) Pay off your debts, doing so will better your debt-to-credit- ratio.
3) Limit credit inquires. To many credit inquiries in a short period of time (credit cards, car loan, mortgage) will ding your score.
4) Never cancel an account with a balance on it. Long standing credit card accounts that have been paid on time and do not have a balance can often bolster your credit score.
If you pay your bills on time while paying down debt your credit score should rise over a period of 12-24 months. If you need assistance you can contact the National Foundation for Consumer Credit (NFCC.org) or CredAbility.com, a national network or nonprofits credit counseling agencies.
I also have a post about a first time homebuyerâ€™s tax credit for those purchasing in the District of Columbia. You can get a tax credit up to $5,000.
Click link below to see more
You didn't indicate why your score is 550 and the reason for that can make a difference in this scenario. It seems as if the unsecured debt might be delinquent? If so, Shane's advice is excellent and you should consult with a lender. Also, you didn't mention how much you have saved for down payment and closing costs in order to purchase a home--another important factor.
Everything is fixable with time and effort (and money!). Put together a smart strategy and stick to it, whether it's to reach your goal of purchasing a home this year, or waiting while you eliminate debt and raise your credit score.
As Kelly indicated, there are a lot of ways to improve your credit score, and FHA is a great route to home ownership if you have a score in the lower tier. You will, however, pay higher interest rates in addition to MIP/PMI if you don't have a 20% downpayment. This is something to discuss with a lender.
I'm a conservative in this area and believe that you'd be better off in the long run taking care of your debt and putting aside reserves before taking on a mortgage. Doing so will remedy your credit score problem and you'll qualify for a better rate when you do buy. Rate can make a big difference in monthly payment, and how much you qualify to borrow. Also, you're likely to have greater peace of mind knowing that your monthly obligations will be manageable once you have a mortgage, and that you have an emergency fund should something go wrong.
Whatever you decide, I'm rooting for you. Best wishes!
The state of your credit is very important however, there are many other ways for you to take control of a property. If you are currently seeking to identify a residential property in the DC area, please give me a call. We are private investors, and have inventory you may find attractive.
Tyrone M. Frisby