Want to buy a home but have a low credit score?
This morning I received an email from a buyer that said:
I don’t think my credit would be strong enough for a full house loan especially with nothing down. Creditials, work history, income..Yes… Credit..No…
I really do not know how to say this nicely…
But let me clue you in on something…
If you have bad credit…
And you have no money for the down payment or closing costs…
SLOW DOWN BUCKAROO!
Think about this logically:
- You have bad credit
- You want to buy a home
- Buying a home requires good credit
- Buying a home requires cash for the down payment and closing costs
- Keeping the home you buy means that you are making the payments
- Bad credit is often because you are NOT making payments
Nothing GOOD comes easy. If you want to own a home, then it means either having the cold hard cash in the bank to pay for the home OR getting a mortgage. I suggest that you read about how to..
Improve Your Credit Score
So if you are looking to buy a home right here in Upstate South Carolina or in freaking Timbuktu it means that your credit is going to make a HUGE difference when you apply for financing.
If you have bad credit, it is possible that you will be denied…
Or you will be approved BUT for a lower amount & a higher interest rate!
And this is all because you have an average to poor credit score.
I will be the first to admit that I have not always been the most credit worthy person. But when my wife and I started looking at buying a home, we started working on our credit several years before we started looking at homes.
Lenders look at a bunch of different stuff when they decide how much interest they are going to charge you. But your credit score is the big boy. If you have a credit score between 720 and 850 then you should qualify for better interest rates. The banks are not lending money because they are nice people. It is all about business and making money.
So if you have a score that is lower, then you can expect to pay a much higher rate.
Or be turned down.
There Is Hope!
If you have a low credit score and you are thinking about buying a home, check out the what people with high credit scores are doing differently:
No Maxin Out!
You really do NOT want your credit cards maxed out. It is much better to spread your charges around instead of having it all on just one card that is maxed out. The ratio of credit card balance to your credit limit is called credit utilization. A higher credit utilization will have a negative effect on your credit score.
On Time Every Time
Well I have to admit that in my past this was my big problem. I would have the money to pay my bills but somehow I always paid them late. Which meant getting hit with late fees and a higher rate.
Not to mention that if you don’t pay your bills on time it will be reported to the credit bureaus. Which means you wind up with a lower credit score. All because you are not making your payments on time.
I know that it is tempting to take advantage of the credit card offers that fill up your mail box. Ignore them!
You do not want to close and open credit card accounts frequently. Every time you make a change to your line of credit, it affects your score. According to the Fair Isaac Corporation (FICO), high credit achievers have accounts that are usually at least 11 years old.
The Take Away:
This whole post was almost the pot calling the kettle black. I made many of the mistakes that I am warning you about above. But having good credit could mean that you qualify for a better rate on your mortgage. And a better rate will save you a crap load of money over the life of the loan.
It isn’t that hard to improve your credit. If I did it, so can you.