If you struggle with bad credit, finding a bank or other lender willing to give you the money you need to buy a new home can be nearly impossible. The few that are willing to loan you money often charge exorbitant interest rates to make up for the high risk involved in lending money to those with bad credit. Luckily, taking responsibility for your credit, and taking the necessary actions to fix it, will allow you to buy a home sooner than you thought possible.
Step 1
Pull up your credit report. By law you are allowed one free credit report annually from each of the three credit bureaus. You can request this report online by visiting AnnualCreditReport.com, or by calling 1-877-322-8228 and requesting a copy of your credit bureau reports.
Step 2
Purchase your FICO score. Your free credit report does not include a free credit score, but during the process of obtaining your free report you will have the option to add a credit FICO score to your order. Your FICO score is a number that creditors use to determine whether or not it is safe to lend you money for your home. The score is determined by many different factors, including whether or not you pay your bills on time, how long you have had a credit report, the number of new accounts you have opened recently, the types of credit you have and the ratio of debt to available credit. This gives lenders an accurate portrayal of how financially responsible you are.
Step 3
Correct any incorrect information on your credit report. This could mean incorrect balances or even accounts that you never opened. You can contest these errors directly through the credit bureau's website. Be sure to have available any evidence to support your case. Credit report mistakes happen quite frequently, and even small corrections can go a long way towards improving your credit report to buy a home.
Step 4
Start paying down your debt. Bad credit often comes from too much debt that has either gone to collections, been written off or is regularly late on payments. By paying off debts that have gone to collections or been charged off and catching up on your late payments, you can do a substantial amount of good for your credit score and can help convince a lender to take a chance on you. Start by getting your accounts in good standing current and on time, and then pay off the rest of your bad debt, starting with the account with the highest interest rate.
Step 5
Call your creditors for settlements. If your account has gone to collections or is a charge-off, chances are your creditor will settle for much less than the actual debt owed to settle the account. Call each individual creditor and ask what type of deal they are willing to offer to get the debt taken care of.
Step 6
Get a secured credit card from your bank. A secured credit card work by you fronting money (usually at least $300) which is put into a special savings account. Whatever you put into the account is your balance on the card. Over time, once you have shown the ability to consistently pay your bills on time, the bank will often refund what is in the account and then offer you a line of real credit but without a guarantee.
Step 7
Pay on time every month. As you begin to rebound from bad credit, it is absolutely essential that you pay your bills on time every month. Even one bill being late can have a negative impact on your credit report, which can then have a negative impact on you being able to buy a home.
Step 8
Talk to a loan officer at your bank. Once you feel you have made a substantial amount of headway in paying off bad debt, and when you are staying current on debts in good standing, it's time to meet with a loan officer. Bring any evidence that your debts are paid off or that they are in current good standing with you to the meeting. Most banks will see the hard work you have done to become financially responsible, which will be reflected in the interest rate you will be able to get upon approval of a home loan.
Tips and Warnings
- Once you know what the bank is willing to offer for an interest rate, shop around to other lenders to get the best deal possible.
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