Sprucing up buyers’ credit

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Dear Steve,
My wife and I toured some new homes and liked what we saw from a pricing and location standpoint. (They’ve really dropped the prices!) We told the agent that our credit had some blemishes and that we’re already carrying a moderate amount of debt, so it was unlikely we could get a mortgage. She said they had a program that could “coach us through” some of those bumps. We didn’t stick around but are now curious about it. What are these programs?
–Shawn W.

Dear Shawn,
These are apparently sound, legit programs. Several major builders have recently started implementing “credit enhancement” or “buyer’s workshop” classes to jump-start sales in this stubborn new era of capital constraint. Homebuilding giant D.R. Horton, for example, offers a free credit-coaching program called Home Buyers Club. Such programs usually employ certified credit counselors and can be conducted in person or online.

Typically, courses include tips on how to get errant or old information expunged from credit reports, and touch on consumer debt-management strategies, budget discipline and the art of building a financial buffer in case of negative life events. Builders say these workshops remain relatively small, but have increased their size significantly in the last year or so. And they’re not geared to all comers, either. Builders screen the program applicants and try to weed out the chronic “slow-pays” and others who seem unwilling to change their payment ethic.

You and your credit score might just benefit from such a program. Frankly, you can accomplish a lot of this by yourself independent of the builder’s hand. If you try to do that, don’t fall prey to errant assumptions such as “closing your credit-card accounts will raise your credit score.” (Actually, the less credit history you have, the lower your score.) Also, realize that lenders don’t look favorably on mortgage applicants who are close to maxing out numerous cards.

As a side note, make sure you use your own agent in the sale if you should qualify for the home mortgage, not the builder’s agent. There are many hidden land mines in builder contracts. And yes, it is true that reduced pricing is making new-home inventory more competitive with existing housing stock these days. If you can negotiate such extras as free upgrades, paid closing costs, payment of a year’s worth of property taxes and a year’s worth of homeowners association dues, the better off you’ll be. Doesn’t hurt to ask.