Four Credit-Related Topics to Keep in Mind When Buying a House
According to John Horton, Vice President and Senior Residential Lending Manager at Associated Bank, it’s still a great time to buy a home – even on the other side of several interest rate increases. In historical context, he notes, rates are still significantly lower than they have been in the past. One thing to be aware of, however, is what your credit looks like before you begin the home-buying process.
Horton warns potential homebuyers to begin taking a look at their credit – and determining whether it’s in need of repair – well before actually issuing a down payment.
Spouse With Credit Issues – Be Open About It
While an ideal scenario for a home-buying couple would involve both individuals boasting perfect credit scores, that’s not always the scenario at work. Often, one person has great credit, while the other’s is less than stellar.
One of Horton’s biggest pieces of advice? If you’re the one with not-so-great credit, don’t keep it a secret.
“It’s a big deal, and sometimes it’s more of a surprise,” Horton said. “I always, when we pull credit, say ‘can we review it?’ Once I didn’t ask, and I reviewed it with both of them; and there was a jewelry store charge on his and she didn’t have any new jewelry. I don’t think they ever bought a house after that.”
“But it is one of those things where you do want to review it,” he said. “You want to go over your credit. People need to get that free credit report every year and monitor what’s on there. There could be erroneous reporting that you wouldn’t know unless you look at your credit and it could be too late by the time you go to apply for a mortgage.”
Make Credit a Part of the Conversation
“It’s funny … how much people disclose to one another,” Horton said. “Credit normally isn’t one of those topics. It’s not one of those things that comes up on a first date – ‘hey, before we go any further, what’s your credit score?’”
But maybe that first date conversation wouldn’t be a bad idea, after all.
“Sometimes you’re into so deep and you do go apply for a mortgage … Don’t apply for a mortgage when you want to buy a house,” Horton said. “Apply for a mortgage when you think you might want to buy a house, so if there are any credit hurdles, any hurdles, you have time to fix it. Once you get in and it’s too late and you’re kind of under the gun, not a lot can be done. But it’s very … fixable.”
Your Good Credit Can’t Help Another Person’s Bad Credit
One misconception people might have is that one partner’s good credit can pull up another partner’s bad credit.
“No, it individually has to be repaired,” Horton said. “If one spouse has poor credit and one spouse has good credit, and that one spouse with good credit has enough income they could purchase the home by themselves. (However), that sometimes doesn’t go over well because the ownership, the title is a little different and it causes a little more stress in the marriage.”
Timelines and Strategies for Repairing Credit
Timelines for repairing credit can vary. That’s why Horton emphasizes the importance of looking into it and addressing it early.
“Depends on what’s on there,” Horton said. “Medical collections takes seven years to drop off. So, depending on what is bad (credit), if it’s collection accounts, if you just decided to stop paying your car note (or) if there’s a history of bad credit, obviously the more bad credit, the longer (it takes to repair).
Horton shares a couple of tips for helping give your credit a boost
“If it’s just a couple points here and there, there’s little tricks you can do. If you have a $500 credit card bill and your payment is 25 bucks and it’s due on the 15th of the month, if you send them – as funny as it sounds – $5 on the first and $20 on the 10th, (if) you spread out your payments (and) make incremental payments, but make that minimum payment on time, (it) drastically increases your score.”
“The other thing is credit utilization,” Horton said. “They want to keep that (at) 30 percent or less. So if you have a $1,000 credit line, you really don’t want to exceed your credit exposure by about, say, 350 bucks. Once you go over that 30-percent utilization, your score starts ticking down a little bit. So a lot of people want to pay down their high-interest credit cards quickly, which is great. (But) you’d be better off getting your credit utilization on all your cards down to below 30 and then go after the higher interest rate cards.”
Another strategy is immediate payoff.
“What also helps, if you don’t have credit: An amazing amount of people do not have credit … Well, (if) you don’t have credit, the bank has no history of you paying people back,” Horton said. “A great idea is (to) open up a credit card (with a) $1,000 credit line, put some gas in your car, (buy a) couple of dinners, pay it off every month. So you’re going to have your 30 percent or less utilization, zero balance and on time payments.”