Iâ€™ve been in the process of cleaning up my credit so that I can prepare to buy my first home. My credit is classified as â€œFairâ€ but, I need it to be â€œgoodâ€ and Iâ€™ve learned so many things along this journey that Iâ€™d like to share. So, letâ€™s start with the basics! There are three major credit bureaus Equifax, Experian and TransUnion. Itâ€™s best to pull your credit report from all three so that you know whatâ€™s being reported on each one. Businesses and banks donâ€™t always report to all three. Equifax seems to be the standard.
When youâ€™re in the home buying process the lenders and housing specialist will look at your median credit score. So, if Equifax has you scored at 580, Experian at 644 and TransUnion at 776â€¦ Theyâ€™ll look at the Experian score at 644. This will determine the home buying programs and loans youâ€™re eligible for and what type of interest rates you may be looking at soon. Itâ€™s a good idea also to clean up as much as you can before the loan process begins so you can qualify for the best interest rate.
The most important thing outside of cleaning up any open collections you may have on your credit report is your payment history. You can have a huge jump in your score if you pay your credit cards off in its entirety or at least 30% usage. Itâ€™s good to create goals while you are going through this process. I have three items open in collections on my credit report that I need to work on removing. I also need to lower my credit card usage. Iâ€™m at 69% usage right now and I need to be at 30% or below.
The three items on my credit report are not being reported to all three credit bureaus. They are all on Equifax, but not Experian or TransUnion. 850 is the highest your credit score can be. Iâ€™m just trying to be a part of the 700 club and Iâ€™m damn near there. Iâ€™m no over achiever. Lol! Keep me at 777 and Iâ€™m all good. Iâ€™m on a timeline because Iâ€™m working with housing specialists as well as new construction. Iâ€™d like to be ready to move into my home once itâ€™s built and passes all inspections etc.
My goals are to pay off an item each time I get paid and try to settle one of them with a higher balance to pay half and get a letter of satisfaction so that itâ€™s removed from my credit report. I have created a monthly budget that I need to stick to as well as save money that will go towards my down payment. I also would like to continue to put money in my IRA. That money is for my retirement but, Iâ€™ve dipped into it for emergencies and paid it back as soon as I was able.
Here are some myth busters and tips: According to the FTC you can get a FREE copy of your credit reports from annualcreditreport.com The highest impact on your credit score IS your payment history! If youâ€™re in the home buying process focus on your needs and not your wants. After you close, you can focus on all your wants within reason. Create a monthly budget (spending plan) and stick to it! Use your net wages in your budget. Thatâ€™s what you get after taxes, itâ€™s a good way to keep track of what you spend.
Once you have created your budget, you should have a good idea of what you spend. Take your income and subtract your monthly expenses and see what you have left. You can either save or spend where necessary. If you are in the negative then you need to cut out some of your expenses. If you pay a bill late it will show up on your credit report. Try to make timely payments even if itâ€™s the minimum payment due and then pay off the rest when you can. Credit Bureaus DO NOT have the right to deny you credit, they just report it! Use Credit Karma or a similar app to track your credit score on a regular basis.
Recommended Family Spending Plan: Food 15%, Healthcare 5%, Utilities 5%, Transportation 18%, Clothing 5%, Housing 32%, Saving 10% and Other expenses 10%.
Disclosure: The model home and floor plan pictured are NOT my actual home. Iâ€™ve requested a two-story home because I prefer that floor plan. It is however a part of the actual phase one housing development.