I don't have good credit or I have too much debt.

What should I do if I have bad credit or too much debt?

Generally, these two go hand-in-hand. We will discuss them together but should you just be suffering from one of the issues, focus on the sections that pertain to you.

As a general rule of thumb, you'll need a FICO score of about 650 to get a mortgage; and that's on the low end. Remember, the lower your credit score, the higher your mortgage's interest rate is likely to be which will greatly affect the total amount of money you pay for your home in the end. If you have lower than a 650 credit score, or want to raise your current score, we have some tips for you. It will take time, patience and determination, but we promise the enjoyment of home ownership one day will make all your efforts well worth it. A score of 700 or higher will put you in a much better position for scoring a low interest rate.

What should I do first?

The first thing we recommend doing is running a credit report (you can do that for free here) and find out what is causing your low score. Here are some great resources that show you how your score is determined.

Next, gather up all your statements for your debt. This includes all credit cards, student loans, car loans, and anything else that may be impacting your credit score (even old utility bills from past apartments, unpaid gym memberships or cable bills can have an impact on your FICO score!). Facing the truth about what you owe can be difficult, but it's also a very important step in turning things around.

What can I do to raise my score and lower my debt?

There are several things you can start doing that will improve your situation. Just be patient and stick with it!

  • Bring any delinquent accounts up to date.
  • Pay your bills on time. Even being a few days late can drastically hurt your score. If you struggle with this, setup reminders on your calendar or phone, or pay things early. Dedicate each paycheck to certain bills throughout the month to keep you on track. The longer your bills are on time after being late, the more your score should increase. Eventually these good payment patterns will take over as the bad patterns fade.
  • Reduce the amount of debt you owe. This is easier said than done, but reducing the amount that you owe will actually feel more satisfying than improving your credit score. After gathering all your debts together from the above, arrange them into some kind of order. Some financial advisors recommend ordering them according to the amount owed from smallest to largest. This way you can focus on your smallest debts first and build confidence as you check them off your list one by one. Other financial experts recommend ordering them according to the interest rate. Paying debts off with the highest interest rate first will help save you money. Since we are not financial advisors, we will leave the decision up to what you think will work best.
  • Stop using your credit cards. Unless you can limit yourself to disciplined usage (such as only to buy gas or use at places where you earn the most rewards), it may be better to stop using them altogether. Give yourself a budget each week for spending and stick to cash.
  • Don't open any new credit accounts. Just don't do it.
  • Don't close any credit accounts - even if you don't use them. This can actually lower your score by lessoning your total amount of available credit.
  • If you are having trouble making ends meet, or feel you need significant help through this process, consider working with a credit counselor. At this point, getting your finances under control is more important than buying a home. Once you are financially ready, we will be here to help you find the perfect first home.

More information about improving your credit score:

More information about lowering your debt: