What Is Credit Repair And How Can It Help You Buy A House?

What Is Credit Repair And How Can It Help You Buy A House?

  • 03/14/22

An excellent credit score can give you many advantages when you are ready to buy a house. You can enjoy lower interest rates, which saves you thousands of dollars and can help keep your monthly payments lower. While having a lower credit score doesn’t make it impossible to buy a home, getting approved for a loan is much easier the higher your FICOⓇ score. With that said, it’s never too late to start working on improving your credit score before you shop for your home loan. If your credit is less than perfect, you may fall into the temptation of credit repair companies that promise a quick fix. So, let’s look at credit repair options and how they can help you buy your dream home.

Understand Your Credit Score

Your credit score is a numerical rating that lenders use to determine their risk for repayment of the loan. A higher score generally shows that you pay your bills on time and don’t borrow more than you can repay. On the other hand, a lower score may show a variety of issues such as missed payments, young credit, and overextending your line of credit.

Equifax, Experian, and TransUnion are the three major credit bureaus that gather the data on your spending and borrowing history and calculate your score. You can visit AnnualCreditReport.com to request your credit report for free. The credit score ranges are:

  • Exceptional: 800 - 850 credit score range will likely get the best interest rates and more offers.
  • Very Good: 740 - 799 credit score will provide you with a lot of options when it comes to pricing.
  • Good: 670 - 739 credit score is the most common range of credit rating for borrowers.
  • Fair: 580 - 669 credit scores will most likely see higher interest rates and lower credit ranges than those with higher scores.
  • Poor: 300 - 579 credit scores are considered very high risk. They may be denied loans by lenders or may have to pay a deposit to receive a loan. Those with poor credit should do a credit repair plan before applying for a loan.

What Is Credit Repair?

There are two types of credit repair. One type is legitimate, but the other type is a scam. Keep in mind that repair companies that sound too good to be true are probably best to avoid. There is only so much that a credit repair company can do, so if they promise to raise your credit score to a certain point or remove every negative entry, they simply cannot do that realistically.

A reputable credit repair company may use a lawyer or paralegal to dispute negative entries on your credit report. Consumers can also dispute negative entries directly with the credit bureaus, but the process may take some time. The benefit of using a reputable credit repair company is that they have legal teams that know the laws that apply to credit and debt collection. If they are able to identify and dispute negative entries on your credit report, this will raise your credit score and may help you get the loan savings you desire when it’s time to buy a home.

Other Ways To Boost Your Credit Score

Even if you work with a credit repair company, you still have to do your part to boost and maintain a higher credit score. Here’s what you can work on:

  1. Get and keep a small emergency fund. This will help you to avoid using credit cards and taking on more loans. Some people take on part-time jobs or a side hustle, or have a garage sale to earn some extra cash.
  2. Focus on making small, regular payments and control your spending. You may have to take a good look at your spending history and find ways to cut back.  
  3. Reduce your high-balance accounts and use credit cards sparingly. If you have credit cards with balances close to their limit, focus on lowering the balances. For example, if you have a credit card with a $5,000 limit and your balance is over $4,000, this actually reflects poorly on your credit score. Try not to get too close to the credit card limit if you do use them.
  4. Consider a debt consolidation loan. This works by taking all of your outstanding debts and consolidating them into one single monthly payment. This actually helps lower the interest you are paying on multiple accounts and helps you to avoid missed payments if you occasionally forget to pay one of the accounts. 
  5. Work with a credit counseling agency. These are agencies that help you analyze your financial history and find solutions for your debt and credit issues. They may contact creditors on your behalf and negotiate your payment or interest amounts. If you choose to use an agency, make sure they do not charge excessive fees.

Remember there is no quick fix to repairing your credit. However, taking these small steps and doing them consistently will go a long way to raising your credit score. BadCredit.org has some additional resources so you can make the best decision to take control of your finances and purchase your dream home!  Contact us for lender recommendations!


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