Make Good on Bad Credit

By: Scott Baxter

Though it may look like the new lending rules are excluding first time buyers and people with a less than perfect credit rating from owning a home, look again. What we're seeing now is just a return to tried and true rules when it comes to mortgages. So rather than keeping subprime borrowers out of the market, the new lending rules might just be protecting well-intentioned people from facing foreclosure. Those who use the recent changes as an opportunity to improve their credit before applying for a mortgage may also be on the road to financial freedom.

If your credit rating needs some work, push up your sleeves and get to it! Putting a year's work into improving your overall score will pay off over the lifetime fo your loan.

CHECK THE RECORD

How your credit rating looks to lenders has a lot to do with what kind of interest rate you'll be able to get on your mortgage. So if you're getting ready to buy a home, get access to your credit reports and give yourself time to make any improvements or corrections before you sign your mortgage application.

Your credit rating (or FICO score) is the rating lenders use to determine your interest rate and what kind of risk you are as a borrower. The scores generated by the three reporting agencies may differ slightly and usually range from 340 to 850. The higher your score, the better your rating. Though it's not a hard and fast rule, in general a score above 650 puts you in the "prime" category. You're not just a number however. Your lender will also take other factors like current income and employment history into consideration and weigh these against the type of loan you are seeking.

SCRUB THE RECORD

The first step to cleaning up your credit report is getting copies. In the US the three main credit reporting agencies are: Equifax, Experian, and Transunion. All of these agencies will provide you with your report for a small fee. It's a good idea to get copies of all three, as details on each may differ - and may sometimes be wrong.

If you find errors on any of your reports, contact the creditor in question and ask them to correct the information. If this doesn't resolve the issue, contact the reporting agency. If an account that was past due has been paid off or kept up to date for at least one year, the creditor may agree to delete the reference from the report. Simply write them a letter with your request - it never hurts to ask and they'll often do it.

IMPROVE YOUR RATING

If you have any accounts that are in arrears - bring them up to date! This is just common sense, paying down debt is the quickest way to improve your score. Keep in mind that your credit rating is based on a number of criteria, the most important of these being: your payment history and current debt load. Some other things to keep in mind while you work toward improving your rating:

1. Whenever you can't pay on time, notify your lender and make alternative arrangements with them.

2. If your credit history is a bit colorful, consider building credit by opening a new credit card account and managing it responsibly.

3. Keeping your nose clean for at least a year prior to making a loan application will improve your record and your credit rating.

4. If your situation is serious - see a legitimate, non-profit counselor to help you get things under control.

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