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When you’ve decided you’re ready to buy a home, it’s possible you may find that your credit history isn’t where it needs to be. If your credit score will limit your choices when it comes to buying new home, or even worse, prevent you from qualifying for a loan at all, you’ll need to do some repair work before you’re ready to buy. If you’ve never faced the task of repairing your credit before, it can be more than a little frightening. There’s a lot riding on this undertaking, and you may not even know where to begin. The team at Ernest Signature Custom Homes are the experts when it comes to whipping your credit back into shape. Our two-part post on repairing your credit is designed to help you tackle this important job with ease. Here’s our step-by-step guide you can use to get started! Know what you’re up against. The first thing you need to do is get a copy of your credit report from all three credit reporting agencies. By law, you’re entitled to a free copy of these credit reports each year. The most efficient way to get them is to log on to AnnualCreditReport.com, but you can also order them by mail or by phone. You can also get free copies of your credit report directly from the credit bureaus if you’ve been turned down for a loan or for credit, if you receive government assistance, if you’ve been a victim of identity theft or a similar fraud, or if you’re unemployed. Some online sites offer free credit reports, such as creditkarma.com, but always read the small print carefully before you agree to anything. You want to make sure you won’t be charged a related fee or set up for a subscription plan of some type. If you’ve already exhausted your avenues for getting free credit reports, you can also order a three-in-one credit report from any of the three credit bureaus for a reasonable fee. It’s always best to get a copy of your credit report from all three agencies. The three agencies don’t normally share information, and not all creditors and lenders report to all three bureaus, so you want to make sure you catch everything that may affect your credit score. Make several copies of each report, so that you always have one handy. Study the report thoroughly. Once you have your reports, sit down and read them carefully. Take your time, especially if you have a long credit history that spans several pages. Your first copy of each of the reports will be your “working file”. Highlight anything that appears strange or suspicious. We recommend using different colors to identify potential mistakes or items for repair that fall into three different categories:

• Credit accounts that are close to or over your credit limit.
• Incorrect information. This can include accounts you don’t recognize or errors in reporting on payments (late payment, non-payment, etc.)
• Past due accounts, charge offs or accounts in collections.

Because each of these categories require a different approach when you’re working on them, it’s best to have a quick way of identifying each entry to know immediately which system you’ll be using to address them. Update your budget. After you’ve identified the accounts you have that are close to, or over their credit limits, you’ll need to begin working on them right away. 30% of your credit score depends on your credit utilization; the amount of your available credit that you’re carrying as a running balance. Most lenders are suspicious of applicants whose current accounts are over 30% utilized. They prefer to see 10% or below in utilization. It’s incredibly important to reduce high balances on open accounts as quickly as possible. Most of the time this will require a budget overhaul. If you don’t have a monthly budget worked out, now is a great time to make one. If you already have one, look carefully for areas where you can trim or tighten your budget to allow for sending larger payments each month. Cut down on entertainment spending, delay expensive vacations, streamline your grocery lists and put off any unnecessary shopping. Make home ownership your main goal, and push aside any purchases that will interfere with meeting that goal. If any accounts are actually over their credit limits, work on those first. Next, tackle the accounts with the highest interest rates or low credit limit accounts that you can clear off relatively quickly. Remember, as soon as you clear off an account, all the money you were sending to that account each month can be sent to another account instead to help bring that balance down more quickly. Resist the temptation to use the newly cleared account again! One thing to remember as you clear off your credit card accounts…it can actually negatively affect your credit score if you cancel accounts you’ve recently cleared off. You’ll need to keep your established lines of credit open and available to you to keep your credit score healthy. If you close accounts, this reduces the amount of credit you have available to you, which can substantially lower your score. In our next post, we’ll address correcting errors in your credit report and share our tips for handling past due, charged off accounts or accounts in collections. Keep an eye on our blog…you won’t want to miss this essential information!