When buying a home and applying for a mortgage, a good credit score is critical. A home can be purchased with less than stellar credit, but often at interest rates and terms that aren’t to your advantage. Improving a damaged credit score is something that takes time, patience and must be addressed long before making the move to apply for a mortgage. Here’s what to do.
When your credit score is low. On-time payments are the foundation of good credit. In other words, build good credit through good payment history. This is true for all debt — credit cards, personal loans, car loans and student loan debt. Set monthly reminders on your smartphone so you don’t forget a payment. Don’t charge more on your credit cards than you can handle in a single month. At the same time, set aside money to build and maintain an emergency fund. Without one, a financial crisis may lead to unmanageable debt levels that could ruin your credit score. Get a free credit report from all three reporting agencies: Experian, Equifax and Transunion. Access your credit report at www.AnnualCreditReport.com. It’s a good idea to check your report annually for errors.
Errors on your credit report? What if you discover errors adversely affecting your score? What can you do? Here are the steps you need to take with some help from consumer advocate Clark Howard http://www.clark.com/challenging-errors-your-credit-report:
- Document why the information is erroneous.
- Dispute it with the three agencies AND simultaneously dispute it with the creditor.
- File a dispute by certified mail with return receipt. Send all documentation and dispute letter to the creditor the same way.
- After a reasonable amount of time, if the problem isn’t resolved, repeat the process, noting in this round of correspondence that you previously attempted to resolve the error with no response.
- If there is still no response, you may have to go to small claims court.
- Ultimately, you may have to turn to the federal Consumer Financial Protection Bureau at https://help.consumerfinance.gov/app/creditreporting/ask. Businesses do not like being on the radar of the CFPB, so this likely will get their attention.
Avoid credit repair scams. Be aware of credit repair companies that promise to restore your credit score for a fee. There are no quick fixes. In some states, such practices are illegal. Better to take the effort to clean things up yourself through persistence, hard work and good credit practices. For legitimate help, contact the National Foundation for Credit Counseling at https://www.nfcc.org/