Keeping Score

My bad credit is on the road to recovery. Can I apply for a mortgage?

If your credit still needs a lot of work, you should focus on improving it rather than rushing into a home loan


If your troubled credit still faces a long road to recovery, applying for a home loan may be premature. Instead, focus on adding more positive information to your credit report, and work to change any negative habits that damaged your score in the first place.

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Dear Keeping Score,

Hello! My car payment was 30 days late for several months and I have a few collections. I have settled with the collections. Less than full amount. Some of them agreed to delete, some didn’t. My car payment and credit cards have been recent for six months already.

I am working with a credit repair company now to help me, but I don’t see any drastic changes yet. My Experian is at 603 now in the last update but my TransUnion and Equifax are in the lower 500s. I am dying to get approved for a mortgage (even just the FHA).

Do you know how long will it take for me to get approved? My credit utilization is high now; I’m trying to lower it to 10-30 percent. Will that help? – Aster

Dear Aster,

OK, I suggest you slow down a bit. It sounds as if you’ve just come through a rough patch in your life.  Collection items and late payments are often a sign that more than just a person’s financial life is under stress.

Check out all the answers from our credit card experts.

Ask Steve a question.

My experience is that finances often suffer during life-changing moments like a divorce, job loss or illness; but in other instances, it can be as simple as getting used to handling new credit and payment obligations when you’re new to the credit game.

Whichever of the above apply in your situation, you should understand that your credit score is based on data contained in your credit report, with very few exceptions (I’ll discuss these briefly below).

Considering that your credit report is a snapshot of your financial life (which often reflects your real life), it’s easy to understand why your credit score may be low right now. It indicates that while you are recovering, you are not yet in robust financial health. Your history of collections tells me you are probably not flush with cash, even though you are able to meet your obligations at this time.

Cut ties with your credit repair company

One easy suggestion to help your financial health is to look into getting out of any agreement you have with your credit repair company. Anything they can do, you can do yourself and it won’t cost you anything. Credit repair companies cannot change accurate or timely negative data on your credit report. But they can charge a chunk of cash for their services, regardless of the results.

Easy suggestion No. 2 is to check your library and borrow or download (for free) a copy of my book, “Credit Repair Kit For Dummies.” It will have everything you need to turn your score around as quickly as possible – although not overnight! Your best bet will be to focus on adding positive information to your credit report, not trying to delete past issues.

See related:  Should I pay off or close my credit card to get a better mortgage?

Your debt settlements aren’t going away any time soon

Next, let’s talk about the things that are bringing your score down and what you can realistically expect to happen and when.

First, those settlements that were not deleted are going to continue to bring your score down for the foreseeable future. And they will stay on your credit report for seven long years. While I know that is a long time, their scoring impact will lessen over time. But for now, I think you have done all you can do about those.

Now to your car payment. Car payments fall into the credit mix category of your credit score, and that counts for 10 percent overall. Having a car payment is a good thing because credit mix can sometimes be hard for those new to credit to achieve.

However, being 30 days late for several months is definitely not a good thing. You are certainly on the right track, though, since you say the car payment has been recent for the past six months. I don’t know where you are on your contract for the car, but you are going to need to be diligent about keeping up the good work from here to the end.

Car debt is different from credit card debt in many ways. Being late on a car payment can lead to repossession, with all its credit damage and expenses in a matter of weeks, not months. So, if you ever have to choose between which bill to pay again, don’t let your car payment slide again if you can help it.

As for your credit cards, you must continue to pay on time and as agreed. This will add positive data to your credit report with each payment. You don’t say how high your utilization is, but the fact that you know it is up there and want to reduce it will also be good for your score in time. I like the 10 percent range far more than 30 percent, but my rule of thumb is the lower the better. Still, you are thinking in the right direction.

See related:  Can you get approved for a home loan without a credit score?

It’s too soon to think about a mortgage

According to the FHA website, you need a score of 580 or higher to qualify for their low down payment assistance. The “low down payment advantage” is currently about 3.5 percent, but those with lower scores may still qualify with a 10 percent down payment.

However, coming up with a 10 percent down payment may not be in the cards for you. Nor do I advise you to take on a mortgage obligation until you have your debt firmly under control. This will be best for you in many ways, not the least of which is what kind of interest rate and other mortgage terms you will qualify for. A higher score is always better!

Dying to get approved for a mortgage is not the best frame of mind, and could very well be why you were attracted to a credit repair company. As I said, anything they can do, you can do for yourself – for free.

I honestly believe you are facing at least six more months before you should think about a mortgage. In the meantime, you can check out some of the new credit score offerings like Experian Boost and UltraFICO. These programs offer ways to bump up your score using your utility payments or your banking information.

Both are free and you can opt out at any time. Both will have an impact on only your Experian score for now, so I don’t want you to think that’s going to be the ultimate answer.

The fact is that there really are no magic beans or credit fairy godmothers that will turn your ugly score into a beauty overnight. But with perseverance and patience (lots and lots of both), you can make it happen for yourself.

Remember to keep track of your score!

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