How to get a home loan if you have bad credit

Ever wondered how you can improve your credit score? It’s easy to fall for the idea of purchasing a house with all the planning and details.

If you want to obtain a home loan, which most people do, you will need to improve your credit score. A FICO score is a simplified calculation that shows how much you owe and what you have paid. Bank lenders will want to see proof that you can repay them on time if you borrow money to purchase a home. Your credit score provides an easy way to do this.

Check your credit report

Three major credit bureaus exist in the United States: Equifax, Experian, and TransUnion. Each publishes its credit scores and reports, which provide a detailed history that can be used to calculate your score. Even though they may come from different sources, these scores should be approximately equal. Experian, for example, considers rent payments as timely, while TransUnion provides detailed information about previous employers.

Assess your situation

Simple: The better your credit history is, the greater your chances of getting a loan. Federal Housing Administration requires that you have a minimum credit score of 580 in order to be eligible for a 3.5% down payment. Major lenders may require as much as 620. What can you do if you don’t have a good credit score? There are many ways to improve your credit score.

How to improve credit score by avoiding error disputes

According to a Federal Trade Commission 2013 study, 5% of credit reports can incorrectly affect your score. If you find any errors in your credit reports, send a letter to the credit bureau challenging them. Make sure to include as much documentation as you can, as per FTC guidelines. Contact the bank or medical provider that gave the incorrect information and ask them for the update. You may need to provide documentation in order to support your case. This process can take some time. Once the incorrect information has been removed, your score should increase.

Errors that were only once made can be erased

Have you ever been late on one or more payments? Who doesn’t make late payments? Ask the company responsible for the late payment to be removed from your credit report. Forrest says, “If you made a mistake and missed a few payments on time,” most companies will inform their reporting division to remove the late payment from your credit record. This won’t work for those with a history of late payments, but minor mistakes will make it easier to improve your credit score.

Your limits can be increased

Paying off your debts is a simple way to improve your credit score. Is this possible? This is an interesting technique: Ask credit card companies for a higher credit limit. This increases your debt-to-credit ratio. It compares how much money you can borrow with how much you owe.

If you have a credit limit of $ 1,500, $ 1,000 of credit card debt can be considered bad. Forrest says it’s okay if you have a limit of $ 5,000. It’s simple math: Although you owe the same amount of money, you are using a smaller percentage of your credit available, which is good for your lending practices.

Pay on time

Switching to a different payment plan is a smart move if you are often behind in payments. Your credit score can be improved by you. You can make a commitment to pay your bills on time. Sign up for automatic payments to help you do this.

Give yourself some time

Negative things, such as regularly late or missed payments, can remain on your report for up seven years. The good news is that you can change your payment history segment, which accounts for 35% of your score. It is important to get started as soon as you can to ensure you’re in a good place once you purchase a house.

After improving your credit score, it’s now time to save for your down payment.