Buying a home? Build your credit score quickly

There are three things you need when you are thinking of buying a home: income, a down payment and credit and the last is probably the most difficult of the three. I have spoken to many potential borrowers who have more than adequate income, have saved a down payment or don’t need one (for VA or USDA loans) but quite often they are credit-challenged.

Borrowers are credit-challenged either because of past credit issues or because they have closed every credit account they once had and now have a low credit score. While we can probably qualify you for a home loan with a 500 credit score, you may not like the interest rate and you may need to produce three to six months’ reserves for the loan. But you can build your credit in short order.

I have worked with clients who got themselves two (not one) secured credit cards and in 6 months their scores had increased enough to get them qualified for a better loan, that is, one with a lower interest rate. Secured Credit cards with limits as low as $300 can have remarkable effects on your credit score. One secret is to keep the balance below 10 percent of the allowable limit, so spend no more than $29 if you have a $300 credit card. Pay it off then use it again. Buy gas, lunch, groceries, anything and in 6 months you may see a big difference.

For borrowers who already have credit but need to go up a few points, a single secured credit card, used carefully for two months, may jump your score ten or more points. Sign up for a credit monitoring service and watch your progress.