Recovering From Bad Credit – Rebuild Your Credit Before Applying For A Mortgage

It is true, negative credit items can remain on your credit report for up to 7 years (up to 10 years for a bankruptcy). But, this doesn’t mean that you have to wait 7 to 10 years to begin reestablishing a good credit rating. Because, credit scoring models typically weight your recent activity rather than the missed payments you might have made in the past, you can change your habits right now and begin reestablishing yourself as a good credit risk for a purchase home loan or mortgage refinance in just 6 to 12 months.

Rebuild Your Credit With The Following Tips

Creditors like to see evidence of stability, so the goal here is to reestablish a good credit history and keep the good reports coming month to month. They also want to see that you can manage your debt without falling into the same financial traps like too much credit that may have led to your credit challenges in the past.

If you have a credit card account with an excellent credit history, DO use it – but use it strategically. In other words, use it only for small purchases that you can easily pay off completely at the end of the month. If you don’t have a credit card, DO get a secured credit card. This is a great way to rebuild or establish credit quickly. Because this account is secured by funds that you deposit (typically between $100 and $400) you’re not seen as a great risk to the card issuer because of your initial investment.

Again, use this card strategically to build a strong credit history. Use it to buy gas and dinner a couple of times a month. Then, pay your bill on time every month, and it won’t be long before you qualify for an unsecured credit account. The time it takes to establish a solid track record with a credit card is around 6 months.

If you can swing it, get several credit cards, so that you have additional credit history. Use the additional cards sparingly and pay them off each month. A good mortgage application needs to have around 4 active credit accounts. See How To Qualify For a FHA Mortgage for additional details.

Essential Steps To Take Prior To Applying For A Mortgage
Three months prior to applying for your mortgage, DON’T apply for, close, or pay off any credit cards, loans, or other kinds of credit without speaking to your mortgage professional first. Any one of these actions, as innocent as they might seem, could seriously affect your credit score, adding significant costs to your mortgage should your score suddenly drop.
Article written by Guaranty Title Agency of Arizona. Guaranty Title Agency has been serving the needs of the Arizona real estate community for over 30 years. During those years, we’ve developed a strong culture of valuing each client who asks us to serve them. We work for you. We don’t ever forget that. We’ll listen to your suggestions, and do everything we can to exceed your expectations. We’re your Partner for Success.