Purchasing A Home With Bad Credit

Bad credit happens. The question is: How do we fix it?

There are a myriad of ads you see if you Google “Credit Repair,” all offering a quick fix to your credit issues if you would only pay them a low, low amount. However, there are no quick fixes, and there are no shortcuts.

There is, however, a simple and straight-forward approach you can take to put yourself in a better position, raise your credit score, and be able to purchase a home, within a reasonable amount of time, usually 6 months.

The first place you want to start is getting a copy of your credit report and credit score. CreditKarma.com offers this for free. If your score is at a 580 or above, you can get approved for a mortgage in certain circumstances, through certain lenders.

If your score falls short of that, it is time to get to work. This means paying off collections, and starting to build positive credit history, which can be done simultaneously.

Your credit report will list all accounts that impact your credit. A lot of people have collections, especially medical collections on their credit. My lender can overlook up to $5,000 of medical collections for FHA financing. If you have more than that, or have multiple collections, here are a couple things you can do:

Dispute collection accounts: Many companies will charge $100/month to do this, when you can easily do if for free. Basically, you go to each of the credit bureau websites, and say the account is not yours/that you have no knowledge of the account. The collection company then has 30 days to send proof the the credit bureau that it is indeed your account. If they do not, then it comes off your credit forever! Here are the links to the dispute pages on each credit bureau: Experian (https://dispute.transunion.com/dp/dispute/landingPage.jsp) Transunion (https://dispute.transunion.com/dp/dispute/landingPage.jsp) Equifax (https://www.ai.equifax.com/CreditInvestigation/home.action)

Pay off Collections: If you are not able to get them removed by disputing the accounts, you will need to start paying these off. The key here is to pay off the most recent accounts first. The credit bureaus can only report collection accounts for 7 years, after that they fall off. However, if you make a payment on an old account, they can report it for an additional 7 years from that date. So, concentrate on the newer bills, and let the older ones fall off with time. 

Building positive credit is also important. Most lenders will want to see 3 active credit accounts in good standing, for about 6 months. The simplest way to do this is by:

• Get a secured credit card from your bank or credit union. Basically, you will deposit a certain amount with the bank, and they will give you a credit card with a credit limit of the amount that you deposited. The more you are able to put down on the card, the better, as higher credit limits are looked more favorably upon. Whatever your credit limit is, do not let your balance on that card exceed 20% of the credit limit. Also, be sure to make payments on time every month.
• Get a Credit Builder CD from BMO Harris. This is a fantastic product. Basically, you are purchasing a Certificate of Deposit (similar to a savings account) on credit. You pay them $45/month for 2 years, and at the end you have a $1000 CD that you can cash in. You can print off the application and information for this here: https://drive.google.com/file/d/0BxiPFes1j58PMF9rZm5LQ09VYjQ/edit?usp=sharing

Avery Garrett is a top Indianapolis Realtor serving the Indianapolis Metropolitan area from Coldwell Banker Kaiser. Avery is Zillow.com Premium 5 Star Agent and Top Contributor, and is a Member of the Metroplitan Indianapolis Board of Realtors. Contact Avery for a complimentary, no obligation, Market Analysis of your home at 317-721-2274, or SoldByAvery@gmail.com. See Avery's reviews and search for a home at www.SoldByAvery.net. 

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