Right now, the dream of owning a home seems to be out of the question. Your credit is so poor that even lenders who offer bad credit mortgages are hesitant to approve your application. Instead of assuming you will never own a home, take steps to improve your bad credit and get to a place where lenders will be interested in doing business with you. Here are several basic strategies that will eventually increase your score and make you more attractive to lenders.
Before you launch any effort to improve your credit, it’s important to have a clear understanding of how things stand today. The only way to accomplish that is to order copies of your credit reports from all three major credit agencies. Your goal is to go over the details on each one and pinpoint which areas need the most attention.
Some people think they can order a single report and know exactly what needs to be done. Remember that most creditors report to one and possibly two of the major credit bureaus. Negative items found on one report may or may not be found on the other two. The result is that both the detail and your credit score may differ by a significant number of points.
Once you have been over all three reports, start formulating a plan that will help increase your score on each one as the months pass. You may want to check into any free or low-cost credit counselling courses offered in your area. Attending those will be worth the time and effort.
If you have any debts that are already in the hands of a collection agency, resolve them if possible. It’s true that those agencies may or may not submit positive feedback once you pay off the balances, but they will report that the amount due is zero. In that way, you reduce the total amount owed. You’ll see why eliminating open balances of this type will prove helpful later on.
If you are in arrears on any of your current accounts, get them current as quickly as possible. Once they are current, make sure all future payments are made before the due date. Your goal is to ensure that those payments are posted and showing by that due date. This leads to references on your credit reports indicating those accounts are current. Current accounts will help increase your score.
While you are making those payments in a timely manner, make sure to pay more than the minimum due on those revolving credit accounts. It doesn’t have to be a lot; even a few dollars more will make a difference. References on reports indicating that you pay more than the minimum will also help your cause. Those comments will also be of interest to lenders when you do decide to apply for bad credit mortgage in Ottawa in a few months or next year.
Your credit score is not just about how you manage debt. It’s also about the relationship between the income you generate and the balances due on your accounts. Even as you seek to lower those balances, it helps to increase income. Perhaps you can pick up a part-time job that consistently provides a certain amount of income each week. Verifiable income, even part-time, is viewed by creditors as part of the money you have coming in each month. The credit bureaus will also look upon your slightly increased income and the fact that you are paying your debts on time favorably.
Why does increasing your income even as you strive to lower your debts matter? The reason has to do with what is known as the debt to income ratio. More income paired with less debt translates into a more favorable ratio. In terms of seeking bad credit mortgages, lenders will readily see that it requires less of your income to honor all those current obligations. If a lender looks at the ratio and believes you can manage a mortgage payment and still stay on top of all those other debts, you have a better chance of being approved.
This ratio has to do with how much of your credit limits are actually being used. A good rule of thumb is to keep your utilization at or below 30%. In other words, if you have revolving credit limits of $10,000.00, make sure you never have balances that exceed $3,000.00. Even then, you should be doing your best to retire those balances so your credit utilization ratio is even better.
As you pay off credit accounts, resolve to not create new balances. If necessary, cut up the cards or stow them away in a place that takes effort to get to them. You’ll find that consistently chipping away at your debt will help your score increase a little from month to month.
As your score improves, you may receive offers for new cards. Some of them will be credit cards you can only use at different types of stores. Do not accept the offers, even if they seem like a wonderful deal. Those cards are only issued after the issuer pulls what is known as a hard inquiry. That type of inquiry remains on your reports for at least one year and will lower your score by several points. It will take months to recover those lost points. Besides, you don’t need more credit cards right now.
These are only a few tips that will help. A financial professional can recommend more strategies based on the particulars of your situation. Set up a plan, follow it closely, and monitor your scores regularly. This time next year, you could be approved for a mortgage and be getting ready to move into your own home.