South Bend Property Investment - Credit Score and Payments

Chapter 8: Getting One’s Credit in Order before investing in a home

Before purchasing any home, homebuyers should get their credit in order. In today’s tough economy, many prospective homebuyers have less than perfect credit. Some have gone through foreclosures, others have had to file bankruptcy and some have had trouble meeting bill payments due to job loss and other difficulties. While bad credit may not hold buyers back when purchasing rent to own homes, homebuyers still need to get their credit in order, no matter the reason for the credit problems. Other homebuyers may not have any credit, which may require some work as well.

Why Credit Repair is Important

Buyers should not underestimate the importance of fixing their credit when preparing to purchase a home. The homebuyer’s credit score can determine the interest rates on mortgage loans and a credit score that is too low may make it nearly impossible to qualify for a mortgage, especially with the rigid lending specifications today. Rent to own homes allow potential homeowners some time to get their credit in order before applying for financing, but credit is still important, even with this window of time to fix bad credit problems. Wasting the time available and failing to improve credit may result in being unable to make the purchase, which will mean all the money spent on the lease option was in vain.

Clearing up Inaccuracies

Buyers that want to improve credit when buying rent to own homes need to carefully deal with any inaccuracies on their credit report. Many individuals investigate and find inaccuracies on their credit report that are affecting their overall credit and credit score. The good news for homebuyers is that clearing up these inaccuracies can help improve their credit. Buyers should start by checking their credit reports from each of the credit reporting agencies, including Experian, Trans Union and Equifax. After receiving the credit report, checking each entry for accuracy is essential.

If buyers find any inaccuracies, they can dispute them with the credit reporting agency. Individuals should compose a letter of dispute along with any information that proves the inaccuracy of the entry and send the letter to the credit reporting agency. Any inaccurate entries must be removed by law, which will help buyers improve their credit score so they are better able to attain financing for the lease option home they plan to purchase.

Important Considerations to Remember

One of the biggest factors when it comes to determining one’s credit score is past payments to creditors. If a potential homebuyer has been on time with payments to creditors in the past, that will count in a positive way toward the credit score. Even just a few late payments to creditors can really lower a homebuyer’s credit score. As a result, offered mortgage interest rates may be substantially higher than those offered to individuals with good credit.

In some cases, writing a letter to the lender explaining the problem may be helpful. The individual may have dealt with a job loss or an illness that led to the late payments. While not every lender will take this information into consideration, some lenders, such as FHA lenders, will keep that information in mind when deciding whether to approve the home mortgage loan.

Caution

While some credit repair companies can be helpful when homebuyers work to repair their credit, individuals must watch out for potential scams. Companies claiming to erase credit problems may be a scam. It is not possible for companies to completely eliminate every bad mark from a credit report. Only inaccuracies can be removed when disputed. When deciding to make use of a credit counseling or credit repair company, take time to research the company and what they offer to avoid becoming involved in a scam.

At a Glance

  • Getting one’s credit in order is essential to homeownership;
  • Fixing one’s credit is essential to obtaining a good credit score, which lenders consider;
  • Inaccurate in one’s credit report may adversely affect one’s credit score;
  • Homebuyers should be careful to avoid credit counseling or repair scams.
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