Because damaged credit takes time to repair, if you’re looking to buy a home, it’s never too soon to do what you can to improve your credit reports and your credit score.
Know Your Credit Score
First, run your credit with one of the major credit companies to find out where you need to improve. You are entitled to one free credit report per year. Late payments, high debt versus income, and missed payments are things to look for that can cause big dips in your credit rating.
Clean Up Your Credit Report
Your damaged credit may not be all your fault. Don’t assume what’s out there is right. After you get your report, check it for any mistakes in reporting, and submit corrections to ensure your report going forward is as accurate as possible. Look for
- Old events that can be removed
- Incorrect addresses
- Items and debt that aren’t yours
- Outdated credit card information
Make Your Report Work for You
Don’t be hasty to scour away any and all past activity. Keep the good stuff, but get rid of the bad. For nearly all credit missteps, the time limit is typically 7 years that the information must stay on your report. Chapter 7 bankruptcy must remain for 10 years.
Minimize Risk Actions
Maxxing out your cards, sudden changes in payment activity, like a new trend of paying the minimum balance rather than paying more, and holding revolving credit are red flags to creditors that you’re in financial stress.
Pay off your card to keep low balances, and keep your open credit limit within your means. Many advisors suggest a front-end debt-to-income ratio (or DTI) of 36% or less, with some variation, depending on your unique situation.
If you’re aiming to buy a home soon, and have damaged credit, don’t despair. The quicker you begin to fix your credit, the faster it will improve. Every positive action you take will demonstrate to your creditors you are on a more promising financial path.