If you’re thinking of buying a home in Silicon Valley in the near future but worry that credit issues could give rise to problems, it’s time to begin repairing your credit now. The amount of time it will take to fix a bad credit score depends on many variables, but the best advice is: don’t even think of shopping for a new home until you’ve taken all the right credit-repair steps. What can you do to re-build your credit?
1. Know the lay of the land. Many people never monitor their credit scores as reported by the three primary credit bureaus. If you suspect your credit-worthiness has taken some hits over the years, order a credit report and find out exactly where you stand. This will give you a good road map for undertaking the repair processand a general timeline for how long the process might take.
2. Search for errors. It’s not uncommon for a credit report to contain errors. In fact, it’s very common. Scan your report for entries of late payments that weren’t late, debts you’ve already reconciled, lines of credit that you never authorized and other errors. Relay your findings to one of the credit bureaus, who, by law, must rectify legitimate mistakes within 30 days.
3. Pay off high-interest loans first. There are many types of debt. The ones that involve high interest count more against your credit score than low-interest loans such as student loans. Do all you can to increase the payment amounts on high-interest debts while making sure to keep up minimum payments on loans with low interest.
4. Pay on time. Late payments will damage your credit rating faster than almost anything else. You can’t go back in history and wipe away previous late payments, but you can definitely commit to doing everything possible to pay your bills on time from now on. Many creditors will set up automatic payment deductions through your bank, which is great if you’re the type who sometimes forgets to make their payments.
5. No new credit. If you’re working hard to re-build your credit toward making what is likely the biggest purchase of your life (a home), the last thing you need is to be seen taking out more lines of credit. Within about six months of applying for a mortgage, avoid getting new credit cards and borrowing money for large purchases such as an automobile.
6. Don’t cancel “good” accounts. If you have credit accounts that have been paid off, keep them. These open lines of credit will help to improve your debt-to-credit ratio, a factor that will be taken into account when you apply for a mortgage.
These are just some of the ways you can start repairing your credit before you begin actively looking for a new home. A professional credit counselor can provide you with more tips while monitoring your activity to make sure you’re always headed in the right direction.
When your credit is in good shape and you're ready to start home-shopping, I would be happy to show you the best Silicon Valley has to offer. Call me at (650) 947-2942.
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