We see many credit reports with low credit scores (anything less than 620), and often many scores in the 500's. This is BAD credit. If you are one of the folks affected by this terrible economy, you have a low credit score and you have a dream of buying a home, here's some simple advice for you.
It is unlikely you could be approved for mortgage financing with that credit score at this time.
Beware of any mortgage professionals promising you an approval with such a low score. Wait on buying a home. I recommend you take the time to resolve your credit issues.
First, settle any outstanding debt. If you owe money on collection accounts, charge-offs and/or judgments, make payment arrangements and get these accounts paid promptly.
Next, begin rebuilding your credit. If you have current accounts with good payment histories, or even some previous late-payment-blemishes, make sure you continue to pay those accounts on time. If you do not have any existing credit accounts then you'll need to establish several in order to create a viable credit history.
I have found that CONSUMER ACTION is an excellent resource for objective advice on all things credit related. You'll find free and sincere advice on everything from settling collection accounts to rebuilding credit to building credit from scratch on their website.
Beware of anyone offering to "repair" your credit! The Federal Trade Commission issued a stern warning last year that such offers are scams. Find more from the FTC HERE.
The best way to buy a home is to have a decent credit history combined with sufficient Income and Assets for a home purchase.
The best way to have a decent credit history is to settle negative outstanding obligations and pay all your bills on time for at least two years.
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Your goal is to have all cards with no more than 30% of the maximum credit available to each. Example, if the card has a 1,000 maximum credit, you want it to never go over $300.
1st - Organize your cards according to balance owed amount.
2nd - Put aside those already with less than 30%....on this you will start to pay the minimum required (until all others are lowered)
3rd - Then send the extra money saved on step 2, to the card with the next smallest balance above 30%....the goal is to bring it below 30% as soon as possible.
4th - Repeats step 3 until all cards are below 30%.
5th - Now reorganize the cards by age, direct all your extra money at paying off the newest cards, keep the ones you have had open for many years to last.
6th - One all clear, try to only keep 3 cards active...save the others for emergency use only. Find one that gives you payback on gas and use exclusively for that purpose...pay it off monthly and it will actually put money on your pocket.
The first part should help raise your scores due to proper credit utilization and the second due to longevity of accounts. More good information is available at http://www.SuzeOrman.com and http://www.DaveRamsey.com My credit has been above 800 since I implemented the above program. Was this answer helpful? If so please click on the "green thumbs up" or the "best answer".
Basically, they want to see that you have a lot of available credit, but don't "need" to use it. Conversely, if you have 3 credit cards with a combined total available credit of 10000, and you have a revolving balance of $9800 that you are making minimum payments on - that is going to look risky in their eyes and your score will reflect that.
You'll also want to obviously ensure that you have no collection accounts or "negative/degoratory" information on your reports. If you do, it would be worth a shot to try and negotiate with them to remove the information.
A high amount of inquires also affects your score. It makes it look like you cannot obtain credit, and are applying anywhere & everywhere to find someone to take a chance on you. An exception to this rule would be if you are "shopping" rates with different lenders for a loan. Another component to your score is your average age of accounts - generally the lengthier of a history, the more frame of reference the bureaus have to draw from and the higher your score should be.
At the end of the day, no one "really" knows the "exact" formula on how your FICO scores are calculated. We do know, however - that they "weigh" different components heavier than others.
Hope that helps!
Here is a link to Eight Surprising Ways To Raise Your Credit Score: http://www.csmonitor.com/Business/Saving-Money/2012/1201/Eig
I hope this is helpful!
Chad Gray PA | Realtor
Luxury Living Fort Lauderdale
(at Coldwell Banker Residential Real Estate)
100% of clients rated our service as "EXCELLENT"!