There are several ways to improve an ugly credit score, and some work fairly quickly. The methods you use depend on the reasons behind the FICO score itself.
One of the biggest concerns of buyers entering into the purchase of a home, is whether their credit score will have a negative effect on their ability to secure a good loan. Ugly credit scores can feel debilitating.
It is important for realtors and loan originators to know how to coach buyers through methods that will improve their score in a relatively short period, enabling them to move forward in their new home purchase.
Low FICO score? Is it because they don’t have much credit?
In some cases, one of the reasons buyers don’t have a high FICO score is that they simply don’t have much of a history. This is a completely different scenario from having a bad history! Lenders are able to pull both non-traditional and manual credit reports to check things like utility payments, rent-to-own agreements, leases and personal loans to provide evidence of good financial management. A low credit score does not need to be a deterrent if your buyer has been financially responsible.
If your buyer needs some quick fixes to a limited credit history, consider advising them to do the following:
- Use a newly acquired credit card for small purchases and pay it off on time, in full, every month.
- Piggy back on a relative’s good credit by becoming an authorized user of their credit card and get their card added to your history. (Hint: You do not have to actually use the card to get this benefit!)
Re-establishing Credit
Time is a healer of many things, but for the purpose of this report, it is a healer of bad credit. If your buyer has some baggage in their credit history (missed payments, bankruptcies, repossession), keep them focused on the most recent infractions. What has happened in the last 12 calendar months is the most important and can actually be used to compensate for mistakes made in years past. For example, the FHA is happy when buyers can show a 12-month on time payment history.
Likewise, using credit too often is a red flag, especially when the spending exceeds the ability to pay. Buyers should be careful in the months before applying for a loan, not to use too much of their available credit. Debt management plans may need to be put in place in the early stages of looking for a home so that when it comes time to lock a loan, your buyer can get the best deal for them.
If those of us in the business of helping buyers to find the home of their dreams, can offer some of these tips, the home buying experience will continue to improve.
Feel free to call, text, or email anytime, as it would be my pleasure to help!
