How can you buy a home in the near future and build your credit at the same time?
This morning I received an email from a reader who is re-establishing his credit history and interested in buying a home next year.
Hello Ross, I need your help on credit building. I think everyone’s situation is unique, in my case I have paid all collections but there is one left for $2,000. Also, I have built up some $8,000 in savings.
I have 16 up to date payments with Capital One MasterCard, my Equifax score is 609 but TransUnion (TUC) just went down from 576 to 549. I only have one credit card which I am using to build credit. Is that enough, as I am planning to buy a house early next year?
I wrote back to Giorgio and also sent him some detailed information to help him on his journey.
1) Check to make sure the important stuff on TUC is the same as on Equifax – i.e. only one o/s collection, the status of Capital One balance and payments, your personal info, etc. If it is, don’t worry about the scores being different – scores are often different between both bureaus and also between the one you get and the one I access when I pull your credit (with your consent only) for a mortgage application.
2) The outstanding $2,000 collection is dragging your score down and hurting your prospects – I would settle that sooner, rather than later. You can pay it in full or you can try to negotiate if you feel you can give the creditor good reason to do so.
3) You don’t say the limit of your Capital One card – if it is less than $2,500, it’s probably not enough unless the rest of your application is very strong (employment, income etc). I would recommend that you arrange a second credit card – a Canadian Tire Mastercard would help, or possibly a card from your current bank (assuming you have no negative history with them).
I would not apply for a second card until you have settled your collection, and the fact it has settled is reflected in your Equifax report, otherwise, you will probably be declined.
4) You don’t give me any historical background (are you a former bankrupt or consumer proposal, what does your report actually look like?) so until I see your report and know some more info, I cannot say how strong your chances of a mortgage will be in the New Year – it becomes case-specific.
Please understand it is not just the numerical score of your credit report that determines your mortgage worthiness, but what is actually in the report and why it is there that also matters. So if you would like to send me a copy of your two reports, I will give you more feedback.