Buying a home with bad credit
If my credit score is only 575, how long
will it take to increase my score? I want to buy a house.
Should I wait until my score goes up to save interest or just
refinance later after my score goes up? Thanks.
-- Okay DJ
While it takes seven years for negative information to drop
off your credit report and 10 years for a Chapter 7 bankruptcy
filing, it doesn't take seven years to improve your credit
The more months you can put between your last
missed payment and your loan application, the higher your
credit score. The higher your credit score, all other things
equal, the lower the interest rate on your new mortgage. Raise
your credit score from 575 to more than 620, and the interest
rate could drop by up to three-quarters of a percentage point.
But your decision depends on more than just
the interest rate on your loan. How are housing prices behaving
in your market? Wait a year to buy a home and you may wind
up spending 5 percent to 15 percent more than what it would
cost you today.
Interest rates heading higher can also change
your perspective on things. The 8.5 percent mortgage loan
you can get today as an E credit might equal the mortgage
rate you qualify for next year as a D credit. If rates stay
low, then refinancing is an option. If rates move higher it
may not make sense to refinance -- even with an improved credit
Review your credit report(s) to see how recent
the negative information is on your report. If you have recent
credit problems, then give it a couple of months to see how
things shape up. A FICO® credit score simulator is available
when you purchase a credit report and credit score for $12.95
Or use the FICO Score Estimator on Bankrate's
site. The score simulator will let you run what-if scenarios
to see how changes you make affect your credit score.
-- Posted: Aug. 12, 2004