Unit 1 : Lesson 3: Your credit report

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What if you don't have a good credit history?

It may be that your past credit record is not as good as you might wish. If you are currently having credit problems, you may not be in a position to buy a house until they are resolved. To do so would only increase your difficulties in getting out of debt. The following are some conditions that might lead a mortgage lender to judge you to have a poor credit history.

Bankruptcy. Having declared bankruptcy within the past seven years is one possible
negative factor. When you declare bankruptcy, you legally declare that you are unable to pay back your debts. You are usually unable to get any credit for at least two years after declaring bankruptcy. If you have declared bankruptcy within the past seven years, it will show up on your credit report. Lenders usually prefer that you wait two years after the bankruptcy is resolved before taking on another large debt such as a home loan. It is usually helpful for you to explain the circumstances under which you declared bankruptcy in your loan application.

Foreclosure. Another reason for a poor credit report might be that you have had a mortgage that was foreclosed. If you have had a foreclosure within the last seven years, this will also appear on your credit report. A foreclosure occurs when you are unable to make monthly payments on your home mortgage loan and the mortgage lender is forced to take over ownership of the house. The lender must then try to sell the house. Having a foreclosure on your records doesn’t mean that you can never buy another house. The mortgage lender will, however, want to know the reasons for your foreclosure. Most lenders will expect you to wait three years before you apply for a new mortgage.

Too many debts. Your credit report may show that you have too many debts to make it possible for you to buy a home. Or it may show that you have a history of making late payments on your debts or skipping payments. If this happens, you can begin to take steps to improve your credit record. There are many nonprofit organizations that can provide you with financial counseling. They may advise you to combine all your debts into one monthly payment and make regular monthly payments to pay off your debts at the best possible interest rate. This is sometimes called consolidating your debts.

Many Americans get into debt by overusing their credit cards. If you have many debts, financial counselors may advise you to stop using credit cards for a while and only buy
what you can pay for in cash. Usually, after you have decreased the amount of money you owe and are able to show a two-year history of making payments on time, you may be ready to begin looking for a home to buy.

Errors can happen. It is also possible that you have received a bad credit report in error. Sometimes a credit report may give a misleading picture of a past credit problem that has since been resolved. For example, you may have been charged twice for the purchase of a new car. The unpaid car loan for the second car still appears on your credit report. The mistake may, for some reason, never have been taken off your credit report. It is a good idea to get your own copy of your credit report to make sure it is accurate and to clear up any errors that might be on the report.

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