Managing Your Credit
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Renter-buyers pursuing a lease option need to be very serious about repairing or maintaining their credit. If a buyer has credit challenges when beginning a lease option or rent to own purchase, and if the renter-buyer is not focused on improving their credit rating, they are better off living in a straight rental. Without good credit at the end of the lease option’s rental term, the odds of lining up a home purchase loan in time are very low. It is absolutely critical for renter-buyers to focus on their credit when beginning to rent with an option to buy.
To start, the renter-buyer should take a close look at their credit report. When reviewing the report, it is critical to understand any bad marks that are holding down their credit rating or score. Many factors can drive down a credit score to an unattractive, low level. These include a history of late payments, over-extended credit, unpaid debt, bankruptcy or a previous foreclosure. Buyers can check and monitor their credit with a third party service.
The following guidelines can help buyers improve their credit.
Make all payments on or before their due dates. This includes monthly rent, utilities, and any billed amount that generates a due date. Late payments generate a negative note for credit scores, and buyers should have a goal of generating zero negative notes.
Avoid Credit Cards
Those renter-buyers who have already run up high credit card balances, or worse yet, over-extended their credit should stop using credit cards and stop adding to their debt balances. Buyers should remember their larger goal of obtaining the loan for their home. So other smaller purchases should be paid with cash. By paying down, or paying off credit card balances, credit scores can be improved and make it more likely for the buyer to qualify for a mortgage in the future.
Pay Off Other Debts
Debts carried on retail charge cards, gasoline credit cars or in a car loan, for example, can also weigh on a buyer’s credit rating. Buyers are wise to work off these debts in a timely fashion. A good strategy is to focus on paying off the smallest debts first, then work up from there.
For those buyers with serious credit repair issues, an outside resource may be needed to provide the type of professional assistance necessary to create a formal credit repair plan.