Editorial Policy

Don't let dreams of buying a home fade

Erica Sandberg

March 18, 2014

QHi Erica,

Bad credit… dreams of buying home faded… –Richard

ADear Richard,

I'm reading your note as though it ends with a question mark rather than a period. Why? Because I want to give you hope.

If what is stopping you from becoming a homeowner is strictly poor credit (and not lack of income and assets), the problem may be temporary or curable — possibly both.

You see, credit changes all the time. It may be bad today, but in as little as a year — depending on what you do now — it could be radically different. This is not based on blind faith. It's fact!

In order to qualify for a good mortgage, you need banks to look at your credit history. If it's not looking so attractive, give yourself some time to pretty it up.Ask Erica

Here are the three issues that make a credit report ugly to a potential lender:

  1. Too much debt. Credit reports show current balances and credit limits. If you already owe a lot of money, the lender will veer away from lending you even more. So check your balance-to-available-credit ratio. If you owe more than 30 percent of the amount you can take out, your FICO scores go down. The higher that ratio is, the more the lender will back away. Use this time to whittle those balances down.
  2. Missed payments. Have you skipped some payment cycles, especially recently? Any accounts in collections? Evidence of delinquencies and defaults will drop your scores like a rock. Great news, though! Newer information matters more than what happened a while ago, so let time work its healing magic. Negative information will eventually get wiped from credit reports altogether (seven years from the date of last activity for these types of problems), but I doubt you want to wait that long. Pay on time from this point forward, and satisfy anything that's landed in a collection agency.
  3. Errors. Sometimes it's not what you did, but what others have done that is causing damage. Read your credit reports carefully, making sure everything is correct. You can pull your reports once a year from each of the big three credit bureaus (Equifax, Experian and TransUnion) for free at AnnualCreditReport.com. Perhaps you paid an old medical bill, but it's still appearing on your reports as unpaid. Or maybe someone else's account is showing up on yours and they owe a lot of money! Dispute everything that is not accurate or that should not be appearing any longer because it's timed out.

Do not give up on your dream, Richard. Allow yourself the time it takes to repair damage, and then do the necessary work.  Pursue professional help, too. Credit counseling agencies that are HUD-certified can provide you with the personal guidance you may need to stay motivated.

Got a question for Erica? Send her an email.