Street Cred - What's the Plan Stan?
Credit. I used to fear this word. For me, I used to hear this word and associated it with word like “debt”, “collections”, and “whomp whomp”. Some people have a more positive reaction to credit — discount, trust, Free Man! When I hear my potential clients say, “I have bad credit,” I follow that up with, “Do you know what your credit score is?” to which they reply, “It’s probably pretty bad.”
The point is, most people might think they have bad credit, I for one thought I did for a while, until I bit the bullet and started talking to lenders for my plan to purchase a home. Turns out I actually had decent credit. I think people just get scared when credit scores start to get pulled. I cannot tell you how many collection agencies I had to duck and hide from while in college and early adulting. I say with anything and everything you desire in life, go get it. Make it happen!
Some of you may not even know what a bad or a good credit score looks like or what is looked at when we are talking about the loaning of money. So here are few things you should know when you get started:
Before talking to a lender, pull your own credit score. It’s easy and it will show you what is amiss. You can do it at: https://www.annualcreditreport.com/index.action for free. Know that there is a culmination of three credit reports coming from Experian, TransUnion, and Equifax.
What’s the magic number? You want a credit score of 620 or higher to apply for a loan.
What do I do if I want to improve my score? Pay off debt, even if it’s just a little bit at a time, the activity will improve your score, especially those in delinquent status. Those are first priority.
Do not open new lines of credit or close existing lines of credit, this can hurt your credit score.
Get a savings account. If you are really serious about buying a house, start saving, it’s a good plan of action and will help you with your financial security.
It is a good idea to have some sort of credit when applying for a loan. Get a credit card with a spending limit and use it for gas or groceries and pay it off on time, this will build your credit history.
Pay your bills on time and try and pay more than the minimum payment due on any credit cards.
You are ultimately trying to change your debt-to-income ratio. Decrease your debt, improve your score, have a stockpile for your future down payment. It might take six months or up to a year, depending on your debt, but strive and make a plan so you can enjoy the benefits of home ownership. Good luck and start saving!
If you are ready to take that step, talk to a few lenders that can guide you and help you with your plan. They can answer all your financial questions and help you understand the loan process. Don’t get discouraged and don’t fear the information presented to you. Then you call me and the fun will really begin!