DIY home remodeling is great — until it isn’t. Here’s how to keep it great. It was their first plumbing project. “It was just a small crack in a pipe,” says Karah Bunde. She and her
How To Clean Up Your Credit Score
t's easy to fall in love with the idea of buying a home. You've got it all planned out: a three-bedroom home in your favorite neighborhood with a manicured lawn and—why not?—a nice pool.
Well, if you really want to land that dream home, you'd better get started now!
Step 1 Is to clean up your credit score, also called a FICO score—a simplified calculation of your history of paying back debts and making regular payments on loans. If you're borrowing money to buy a home (as most do), lenders want to know you'll pay them back in a timely manner, and a credit score is an easy estimate of those odds.
Step 2 Pull your credit report -There are three major U.S. credit bureaus (Experian, Equifax, and TransUnion), and each releases its own credit scores and reports (a more detailed history that's used to determine your score). Their scores should be roughly equivalent, although they do pull from different sources. For example, Experian considers on-time rent payments while TransUnion has detailed information about previous employers. You can get help with this from your bank or mortgage lender too. There are other sights but these are the official ones that banks and lenders use.
Step 3 Assess where you stand- It's simple: The better your credit history, the higher your score—and the better your opportunities for a home loan. The Federal Housing Administration requires a minimum credit score of 580 to permit a 3.5% down payment, and major lenders often require at least 620, if not more. So what can you do if your credit report is in less than shipshape? Don't panic, there are ways to clean it up.
Step 4 Dispute any errors - A 2013 Federal Trade Commission study found that 5% of credit reports contain errors that can erroneously ding your score. So if you spot any, start by sending a dispute letter to the bureau, providing as much documentation as possible, per FTC guidelines. You'll also need to contact the organization that provided the bad information, such as a bank or medical provider, and ask it to update the info with the bureau. This may take a while, and you may need documentation to make your case. But once the bad info is removed, you should see a bump in your score.
Step 5 Erase One-Time Mistakes - So you've made a late payment or two—who hasn't? Call the company that registered the late payment and ask that it be removed from your record. If you had a missed a payment or two, most companies will indeed tell their reporting division to remove this from your credit report. This won't work if you have a history of late payments, but for accidents and small errors, it's an easy boost for your score.
Step 6 Increase your limits - One no-brainer way to increase your credit standing is to simply pay off your debt. Not an option right now? Here's a cool loophole: Ask your credit card companies to increase your credit limit instead. This improves your debt-to-credit ratio, which compares how much you owe to how much you can borrow.
Having $1,000 of credit card debt is bad if you have a limit of $1,500. It isn't nearly as bad if your limit is $5,000. The simple math: Although you owe the same amount, you're using a much smaller percentage of your available credit, which shines well on your borrowing practices.
Step 7 Pay on time - If you're often late with payments, now's the time to change. Commit to always paying your bills on time; consider signing up for automatic payments so it's guaranteed to get done.
Step 8 Give yourself time - Unfortunately, negative items (such as those habitually late or nonexistent payments) can stay on your report for up to seven years. The good news? Changing your habits makes a big difference in the “payment history" segment of your report, which accounts for 35% of your score. That's why it's essential to start early so that you're sitting pretty once you're shopping for homes and find a house that you can proudly call your home.
There are many mortgage companies and banks that can guide you along the way. Reach out and talk to them, they are professionals and they want you to be successful.
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