Building your Credit for your Purchase of a Home in Scottsdale

Before beginning your search for your dream home in Scottsdale, you need to be sure you’re able to purchase it. Not only do you need to save money for a down payment, you need to make sure your credit rating is the best it can be too.

Two principal credit issues that prevent someone from being able to purchase a home in Scottsdale are poor credit and no credit.

If you have poor credit, you will need to do some work to rebuild your finances. You may need a credit counselor if your problems are bad enough but for this article, we’ll assume you have just a few minor problems to deal with.

Poor credit

Blemishes on your credit history will take some time to take care of so get busy right away. Start paying your bills first of all. Pay those small collections that you wanted to ignore.

But DO NOT PAY debts older than 7 years as they are uncollectible. Don’t even make a small payment thinking that will pacify them because every time you make a payment, the clock re-sets and the remainder you owe will stay on your credit report for 7 full years.

In the case of uncollectible debts, you will need to request the debts be removed from your credit report. A good Scottsdale home lender can help guide you through this process.

Start rebuilding your credit history immediately – if there’s a local business that is willing to extend you a small credit line, take advantage of it and pay your bill on time and in full. “Prepaid” credit cards are another way you can rebuild your credit. It may seem odd but you can make a deposit with a credit card company and “charge” purchases against those funds.

Making payments on time, every time begins the process of rebuilding your credit rating.

But beware of one tactic that may seem logical to use to pay down debts and that is consolidating credit card balances onto one account. Many prospective Scottsdale homebuyers fall into the trap of lumping all of their credit card balances onto one that offers a low interest rate.

In other words, DON’T CONSOLIDATE CREDIT CARD BALANCES. It may seem illogical but it’s how credit reporting agencies and lenders work.

For example, let’s say you have 5 credit cards with a $5,000 limit and you have a $2,000 on each one. As long as you’re making payments on each one on time, your credit rating will be fine. You’re only using 40% of your available credit, and that looks good to creditors.

However, let’s say you get one of those teaser offers of 0% and you decide to move all of your debt to that one card - $10,000 on one card with a $10,000 limit. Even though you’re still using 40% of total available credit, your credit score will suffer because credit agencies will see that you’re using 100% of your available credit since you have maxed out one or two of your cards.

No credit

While paying cash may seem to be and is the responsible thing to do, it can be a problem when you’re applying for a Scottsdale home loan. It would seem that paying cash for everything would make you a responsible person in the eyes of lending institutions and thus, an ideal candidate for a mortgage loan.

Lenders however need to see a steady payment history – they want to know that you can owe a sum of money and make regular, on time payments month after month.

Begin by obtaining and using some credit and paying your balances off each month. But there’s more you can do to prove your credit-worthiness to a lender:

1. Save cancelled checks and rent receipts if you’re currently paying rent for a place to live
2. Save cancelled checks and receipts for electric, phone and cable TV bills
3. If you have a charge account at a local store you pay each month, save bills, cancelled checks and receipts
4. Go through your financial records and pull out anything you think will be helpful in proving your case to the lender.
   

Establishing your own credibility and credit-worthiness will go a long way toward getting you approved for a Scottsdale home loan at the best possible rate.

And if there’s anything I can do to help improve your credit so you can be in a position to purchase a home in Scottsdale, please contact my Scottsdale real estate office today.

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