To buy a house? How to improve your financial situation
When Nicole Johnson lost her job as a teaching assistant last May, at the height of the pandemic, she decided to stay home with her then 6-year-old daughter, who was doing distance learning.
Johnson, who lives in a low-income social housing building in White Plains, New York, used some of his free time to attend a series of webinars to learn about buying a first House.
“My daughter is only seven years old. And from the moment she started talking, it’s one thing she’s always said, ‘I want to live in a house,’ says Johnson, who is divorced. “It’s just something I want to give her. We want to have a backyard and eventually I want to be able to leave it to him.
As I went through the webinar series, one thing became clear: the importance of being in good financial health and having a good credit rating. This would determine her attractiveness to a lender when she made mortgage purchases and whether she obtained favorable terms.
Obtain pre-approval for a mortgage:How to do it in 6 steps this spring
A credit score is a number between 300 and 850 that shows a consumer’s creditworthiness based on their bill payment history, current debt, and other financial information. A high score could mean lower interest rates on a loan, as lenders feel more confident that a person will pay off future debts.
A score of 800 or more is considered excellent, and most consumers have credit scores between 600 and 750, according to Experian, a credit reporting agency.
Johnson said her credit rating was battered when she got divorced six years ago and it took her six years to get her credit rating down from bad to good.
“I looked at my credit rating and saw what was exceptional. And I personally wrote to each company, and they offered me a lower payment schedule, ”she says. “I was very shocked that they were ready to work with me.”
Johnson’s first order of business was to find an organizer where she would note every payment that came due and make sure the payment was made on time. If she couldn’t make the payment, she would negotiate an extension without penalty.
“Mortgage lenders will want to know that you have at least two years to pay all of your bills on time,” Johnson says. “I am so proud of myself. I am currently in the 650 to 700 range ”.
At AnnualCreditReport.com you are entitled to a free annual credit report from each of the three credit reporting agencies. These agencies include Equifax, Experian, and TransUnion.
Finding Your First Home:Here are 5 tips from the pros
During the COVID-19 pandemic, agencies are offering free credit reports every week until April 2022 so people can stay in control of their finances.
Tips to improve your credit score
Check your credit report
Getting an annual credit report will help you spot errors and fraudulent accounts. If you find any errors, write to the credit reporting agency and information provider, such as your bank or credit card company, detailing the errors. They are required to investigate.
Pay off your debt
If you’re behind on your bills, updating them might help. While a late payment can stay on your credit report for up to seven years, having all of your accounts up to date can be good for your scores. According to Experian, this also prevents the addition of other late payments to your credit history as well as additional late fees.
Pay your bills on time
Make sure you don’t miss loan or credit card payments older than 29 days. Payments that are at least 30 days late can be reported to the credit bureaus and hurt your credit scores.
“If you can still make payments on time, it just shows you’re a reliable borrower, and it shows you’re a less risky person,” says Andy Taylor, Managing Director of Credit Karma.
Avoid balloon payments
When you get your credit card bill, pay what you can. Don’t wait until you have the full amount.
“Make payments as small as possible during the month, rather than the 15th or first of the month,” Taylor says. “At the end of the day, if you can reduce your credit card use, it will actually increase your credit score.”
Don’t open too many credit cards
If you apply for too many cards in a short period of time, you might seem like a greater risk.
“Looks like you’re looking for the money, and maybe you’ve got a big buy coming up,” Taylor says.
Swapna Venugopal Ramaswamy is Housing and Economics reporter for USA TODAY. Follow her on @SwapnaVenugopal on Twitter.