Buying a Home with Bad Credit

by Mary Ann Romans | More from this Blogger

13 Feb 2008 05:49 AM

Yesterday, I received the following question about buying a home. It is a good one. Houses are plentiful and discounted in today's market, so provided that you can pay in cash or get a good interest rate, it is a good time to buy. Bad credit can affect your ability to get a good mortgage. On to the question.

"I have a question!

"We have really bad credit, should we find a realtor that will help us fix/rebuild our credit before buying a house. Or should we try to fix it ourselves?"

While a realtor can advise you on ways to improve your credit, the process can take many months or years, so you should start as soon as possible. Meanwhile, there are options out there that may allow you to purchase a home even with bad credit. We'll review them later.

The first thing you should do is get a credit report for yourself and your spouse or partner. By law, you are entitled to a free credit report from each of the three credit reporting agencies once every three months. Next, examine the credit reports to see if there are any errors. Chances are that errors do exist. These errors will need to be cleared. The Fair Credit Reporting Act gives you the right to dispute any inaccuracies in the credit reports. If you find errors, write to each credit reporting company on which the error appears and explain the situation. The agency will investigate the situation and remove the inaccuracies.

Unfortunately, if the bad credit was created by you, then nothing can remove it, although two things will soften the blow: time and good, positive credit information.

There are two things that can bring down your credit score. One is obvious: a history of bad debt or non repayment of debt. The other is lack of credit. Believe it or not, if you have never taking out any loans or credit cards and have always paid by cash, this can hurt your credit score. Don't go into debt, but consider obtaining a credit card that you can use for your everyday purchases, paying it off monthly, so you don't accrue debt. This will show that you can be trusted with credit.

Next up: We'll talk about cleaning up bad credit in preparation for buying a home.

Mary Ann Romans writes about everything related to saving money in the Frugal Blog, technology in the Computing Blog, and creating a home in the Home Blog. You can read more of her articles by clicking here.

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Learn more about Mary Ann Romans

Mary Ann Romans is a freelance writer, wife and mother of three children. She lives in Pennsylvania with her husband, the kids and a 16-pound cat.

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DivasMomma (20907) 13 Feb 2008 01:25 PM

this was my ? as well...Dh has a credit score of 566, but has never had a credit card. He wont get approved for one either because of a non payment of a cell phone bill (Only about $200), and an energy bill (about $400) The only other things on there is a past car we just paid off and traded in, and out new car. Any other ideas on how to improve his score so we can get a good mortagage? And how about first time buyer loans?

Mary Ann Romans (26886) 13 Feb 2008 01:54 PM

There are such things as secured credit cards. You basically have money in the back up to the amount of your available credit, so the bank knows that if you don't pay that there is money they can use toward the debt.

Look for the next article, which will cover some more ways to raise your credit score. As a preview to that article, I would say the best thing is to start paying toward those outstanding bills, if you can. Even $10 a week could help.