There is nothing quite as frightening in the mortgage process as learning that your credit report contains some late payment you made in college or some mistake from a phone company that happened a decade ago.
Luckily, most errors and negative items can be taken care of and eliminated; and when it comes to buying a home, you will need to get your credit cleaned up so you can qualify for that low interest loan.
“Your credit score is the basic decider regarding your capability to attain loans, ideally on much lower interest rates,” says Greg Tilley, from a credit repair agency in Colorado. “Put simply, the higher your credit score is, the higher your chances are of being permitted to get a loan and/or credit. In the case of a low credit score, you may find yourself in an ‘extreme-risk’ classification which means lenders will be reluctant to offer you any sort of financial assistance.”
According to credit counselors, there are approximately 43 million people in the United States with credit blemishes severe enough to make obtaining home loans with reasonable terms difficult.
“There are things that can be done, regardless of whether it is a mistake or an actual failed payment on your part,” says Anna Rodriguez, of an Arizona-based credit information center. “The important thing is not to panic, get ready to plead your case and be courteous when talking to the people who have the power to make the changes.”
The simplest thing to do if you’ve missed a payment and have it on your record is to call the creditor and ask them politely to erase the negative listing. You can also do this with a well thought-out letter. There is no guarantee that a lender will do this, but if you’ve been a good customer through the years, this method has proven to be successful.
“You can also get a collection agency to agree to remove a debt from your report if you pay it,” Tilley says. “This method is called ‘pay for delete’ and it works great on smaller amounts of $500 and under, especially medical collections.”
It is advisable to get the agreement in writing before you pay them though, and only send a money order after you get them to agree.
If you are one of the millions who have defaulted on a student loan you can enter into a “rehab program,” which will get your account back on track after 12 months. This may not be the quick fix that someone buying a house needs, but the sooner you do this the better.
For disputing something that was not your fault, you can try disputing the account with the credit bureaus as “not mine.”
“The older and smaller a collection account, the more likely the collection agency wouldn’t have bothered to update the correct information and the credit bureau won’t be able to match up computer records,” Rodriguez says. “This is a great way to clear blemishes.”
A quick fix that some people use to boost their credit score is to have an older family member with a great credit rating add you as an authorized user on one of their old credit cards. This could help your score increase dramatically and you wouldn’t even need to have the card in your possession.
With more loans requiring higher credit scores today, it’s never too early to start fixing those problems.
By Keith Loria