Your credit score is less-than-perfect, but you want to buy a house. Ever consider our credit counseling services?
A 2007 USA Today article about personal finance shed new light on the subprime mortgage crisis. Journalist Sandra Block reported that mortgage lenders are stricter in granting loans now -- after the crisis -- than ever before. This is bad news for people with low credit scores – they are more likely to be rejected for loans than individuals with good credit records. Fortunately, credit counseling can get individuals with poor credit scores on the road to home ownership. We'll discuss that in further detail later in this article. But first, let's explore the relationship between a credit score and home ownership.
Whether you have a good credit score or a bad credit score, whether you are a candidate for credit counseling or not, it's important to realize that current interest rates are higher than they were at the height of the real estate bubble. This is because banks want to protect themselves from incurring financial loss above and beyond that which they suffered after the housing bubble burst. As it is, many houses – especially those in formerly hot “bubble markets” like Florida, California, and Arizona – sit unsold, and the values of those houses continue to fall.
Banks are toughening their standards for who can apply for a mortgage loan. A borrower with a good credit score is attractive to a money-lending institution. The high credit score demonstrates to a bank or other lending institution that the borrower is a low-risk individual – in other words, he or she is far less likely to miss a payment or to stop making mortgage payments altogether. Lending institutions reward these individuals by charging them much lower interest rates on loans.
Conversely, individuals with poor credit scores are considered to be risky borrowers, according to Bankrate.com. The chances that they will default on their loans are much higher. Lending institutions are much more likely to charge higher interest rates to individuals with poor credit scores to – again – insulate themselves from the shocks of financial loss stemming from loan defaults. Those higher interest rates can translate to hundreds of additional dollars in mortgage payments each month.
Saving money in the long run is a strong reason to clean up your credit score before you apply for a mortgage.
Credit counseling helps you clean up your credit score to prepare you for home ownership
If you are considering home ownership, the first thing you should do is work to clean up your credit score. And, credit counseling or online credit counseling is a great choice for a prospective homeowner with a shaky credit score. By divulging your financial situation and typical spending habits to one of our Advantage CCS credit counselors, you will be able to take the most important initial steps towards repairing your credit score. The process won't happen overnight, but through dedicated work and resolve, you will be able to raise your credit score.
There are no fast fixes to improving your financial standing, unfortunately. You can, however, take some steps – with the assistance of a credit counselor – to see where your credit score stands and exactly what you'll need to do to repair it.
Bankrate.com states that you will need to ask for a copy of your credit report and go over it carefully to ensure that there are no errors. False delinquencies, lines of credit you don't actually have open, and even other peoples' credit information in your report, are conditions that can contribute to false scores.
Next, you should start paying down your debts. If they're all on credit cards, pay off the cards with the highest balances first – usually those accounts that are at or near the credit limits. What's the rationale behind this advice? Craig Watts works for Fair Isaac Corporation, the namesake of the FICO score (another name for “credit score”). He says that using most or all of the credit loaned to you can have negative effects on your credit score. However, having a big line of credit open with no outstanding balances – only bills that are paid off faithfully every time – makes you look like a better mortgage risk. It proves to mortgage lenders that you can borrow money and pay on time, every time.
As you continue in your credit counseling sessions, you will probably formulate a tailored debt management plan with your Advantage CCS credit counselor. You will learn how to handle and pay off debts – and more importantly, you will learn tricks for avoiding future debts. If you want to buy a house – but your credit is less than perfect – give Advantage CCS a call today! We want to help you get on the path to the American Dream, home ownership.