3 Steps to Improve Your Credit This Fall

credit repair for prospective homebuyersIt’s not even Halloween yet, but if you’re thinking of buying a home in 2013, you should be preparing now.  One major hurdle for many Americans is credit clean-up. Most traditional loans and lenders want good credit before they’ll loan money for a mortgage; so, today we discuss ways you can get your credit back on track. The best part: your credit doesn’t actually have to be perfect to buy a home—and we’ll explain that too in the next blog in this series.

But first things first:

3 Steps in Credit Repair

1. Your first step is to obtain your credit report. You need to see what your lenders will see when they run your credit. Every American citizen can request one free credit report a year from the nation’s three credit-reporting organizations (Equifax, Experian and TransUnion). If you request yours via the web, be sure to go to an official Annual Credit Report website, not a fake “free” site that actually charges you for the service. Safer still, print and mail in the Federal Trade Commission’s request form. You may also call toll-free at 877-322-8228 to lodge your Annual Credit Report request.

Once you get it, correct any mistakes you find. This means reporting any inaccuracies to the credit bureau named on the report, because by law, the creditor or credit agency must make needed corrections for free.  Expect up to a month for the changes to take effect on your report.

2. Start Shaving Down and Organizing Your Debt

If you have multiple debts, new debts, or very expensive debts, your FICO score will suffer. Make a plan then to either consolidate or pay down debts. Most creditors are open to a repayment plan, and if you make agreed upon payments in a timely fashion, your score will slowly creep up.

Consolidating debt means all of your debts are bought off by one agency, one you will now owe one monthly payment to instead of paying multiple creditors each month. Be careful if you choose this route: talk first to a credit counselor at a non-profit agency—for example, the National Foundation for Credit Counseling.That way you avoid getting into deeper debt than ever by putting yourself in the hands of an unscrupulous organization.

3. Dealing with Bankruptcy

Since a bankruptcy filing will stay on your credit records for 7-10 years, the whole point of fixing credit is to avoid this problem in the first place.  But if you already have a bankruptcy on your record, that does not mean you can’t buy a home. Your situation will just be more complex, and probably more expensive, than people who’ve never filed that way. Talk to a credit union or mortgage broker about programs meant to help home buyers with less than perfect credit to find out what you can do to prepare for—and succeed in-- the loan application process.

Help Is Out There

We’ll be back next week with more on how homebuyers still working to repair their credit can buy homes. Meanwhile. here are some additional resources to get you started.

Anna Marie Erwert writes from both the renter and new buyer perspective, having (finally) achieved both statuses. She focuses on national real estate trends, specializing in the San Francisco Bay Area and Pacific Northwest. Follow Anna on Twitter: @AnnaMarieErwert