Purchasing Real Estate in a Buyer's Market
Things to Consider Before Buying a Home- Credit Scores
Aug 8, 2009
Purchasing Real Estate is an exciting adventure, but it is also the biggest purchase most of us will ever make. In these economic times, real estate is a buyer's market with forclosures on the rise. Home prices are lower and this creates opportunities for many people to think about home ownership.
Examining a Credit Report
Perhaps the most important thing to look into before buying a home is the credit score. Banks and finance companies are more likely to provide loans to people with credit scores higher than 650. Every prospective homeowner should research his or her own credit score and follow recommendations to make improvements to the score.
Some suggestions for improving credit scores include:
- Paying all bills on time – every month. Bills paid thirty or more days late will report negatively to the credit bureau
- Ensure a healthy debt to income ratio. If a person’s total debt is too high for their income, this will also reflect negatively on their credit
- Take care of outstanding judgments or accounts. Many people find that their credit report includes long forgotten accounts that continue to reflect on their report month after month
- Obtain secure lines of credit or loans as opposed to unsecured debt. Car loans are an example of unsecured debt as are loans from finance companies. Secure debt includes bank loans and pre-paid credit cards.
Improving Credit Scores
If a credit score is particularly low, the individual should consider asking a friend or family member to be added to their credit card as an authorized user. If the friend or family member has a good credit history and bill payment history, being added as a person who can not only use the card, but is also equally responsible for the bill, can increase a credit score rapidly.
Consulting a debt recovery specialists or a credit counseling company is also an important step to increasing a credit score. Many of these services offer practical yet proactive ways to enhance a credit report:
- Prepare a budget – take a good look at where money goes each month and where it could be saved
- Set long term and short term financial goals
- Dispose of unnecessary spending
- Make smart choices such as cutting coupons and staying away from impulse buying
- Create a savings account that is funded with a direct deposit from a paycheck
Credit Cards Don’t Have to Be the Enemy
Having a credit card can be a significant tool in improving a credit score. As previously noted, it can be a source of secured debt. The key is understanding how to use the credit card and what makes a good impact on a credit report.
- Keep the balance below 50% of the credit limit
- Pay the bill on time each month
- Having a balance is not a bad thing – in fact, a balance on a credit card keeps that account reporting to the credit bureau each month
- Keep old accounts active. The longer an account has been active, the better it is for the individuals credit score
- If a purchase is made, either pay it off when the bill arrives or pay it down. Interest rates on credit cards are significant on balances and this only increases what is due next month
In this buyer’s market, it is tempting to jump in and take advantage of low home prices. The potential homeowner should exercise caution, use common sense and do the research necessary to have the upper hand in real estate purchasing. Don’t learn the hard way, do it the right way the first time.
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