When I was in my 20s, I worried about my credit score like a squirrel worries about someone finding its stash of walnuts. After finishing college, where I used my credit card to get by, I graduated with student loan debt and a job that barely paid the bills. Can anyone relate? Until I dug myself out of debt and improved my credit score, I wasn't going to be able to buy a house.
If you're hoping to buy a house and have poor credit, know there are ways to improve your score. A poor credit score is between 300-579, making it difficult or impossible to get a home loan. Here are a few tips for improving your credit score:
- Avoid missing payments
- Rent payments
- Avoid minimum payments
- Avoid new credit cards
11.1% of the U.S. population has a FICO score below 550. - FICO
If you habitually make late payments on your credit cards and loans, your credit score will suffer greatly. To avoid missing payments, schedule an automatic payment to your credit card or loan within a couple of days of receiving your paycheck.
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Rent Payment Advantage
Your monthly rent payment can improve your credit score so you can buy a house. First, access a rent-reporting service to document and apply your rent payments toward your credit score (see list below). Then, as you pay your rent and boost your credit score, you'll move one step closer to buying your first home.
Minimum Credit Card Payments = Maximum Trouble
I paid the minimum credit card payment ($25/month) while in college, and it turned my balance into an expensive nightmare. If you are only paying the minimum amount on your credit card, not only will it prolong the overall payoff, but you also pay more in high-interest rates. If you have multiple credit cards, consolidate them into one card and one low monthly payment.
New Credit Cards
If you have several credit cards and apply for a new credit card, you may harm your credit score as you take on more debt. Avoid accumulating more credit cards and focus on paying down your debt.
Find ways to create additional income, like a second job or cutting back on unnecessary spending, so that you can pay off your credit cards. Instead of applying for a new credit card, consider transferring your existing credit card(s) to one low-interest credit card. By consolidating multiple credit cards, you will only have one monthly payment and the ability to improve your credit score faster.
If you have a low credit score, there are various ways you can improve your credit so you can buy your first home. If you're paying rent, boost your credit score by reporting your rent payments to one of the institutes listed above (others options are available). Avoid missing payments on loans and credit cards, pay more than the minimum amount on your credit card balance each month, and don't sign up for new credit cards. By practicing these tips, you'll be on your way to an excellent credit score and a new home!
Talk to a local mortgage lender to learn more about qualifying for a home loan. If you need a local real estate agent, please let us know at email@example.com.
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