12 Months to Better Credit: Rebuild Your Credit Score to Improve Your Financial Health

October 24th, 2023

Having damaged credit negatively impacts your finances, making it difficult to qualify for mortgage loans at reasonable interest rates. Even if you have bad credit, you can rebuild your credit score over time. Then, you can refinance your mortgage and potentially get a lower rate and save money each month.

If you're a BlueHub SUN client, you're already on a path toward financial health. SUN is not the end of the road but a safe harbor, a steppingstone that allows you the time and resources to repair your credit and rebuild your finances. Our program is designed to be a temporary solution, so we encourage our clients to prepare for the next step—exiting our program by refinancing or selling their property. By diligently improving your credit, many homeowners find themselves in a position to refinance or sell their property and exit the SUN mortgage program. The time it takes can vary based on individual circumstances. 

If you have a shared appreciation mortgage (SAM), it is important to remember that appreciation typically grows overtime. That is why we encourage all of our clients to clean up their credit as soon as possible to asses their options. Over 40% of SUN clients have paid off their mortgageand, where applicable, their SAMand successfully exited the program.

This blog post will guide you through actionable credit improvement tactics. Credit rebuilding is a key step in helping you refinance into a conventional mortgage with better terms and interest rates.

Even if you're not a SUN client, this blog post will help give you the knowledge to restore your credit to refinance your mortgage. As you apply these strategies, stay persistent, since this process takes time. Following these important steps for the next 12 months can help you restore your credit.

Get your copies of credit reports from the three major credit bureaus at AnnualCreditReport.com, which are available free once a calendar year. Then, check them thoroughly for errors affecting your credit scores. If you also want to also know your score, you may be charged a small fee.

Reviewing your credit reports carefully is important to identify and dispute any incorrect information that’s potentially lowering your scores. Use each credit bureau’s dispute process to get your credit report corrected, since removing errors can raise your credit score substantially.

Because credit reports don’t include your three FICO® scores, you’ll have to order those separately. You’ll need those because FICO® scores are what many lenders use to evaluate your eligibility for mortgages.

While some banks offer them for free, you may have to pay to get all three scores at once. Contemplate subscribing to a reputable service throughout this process to get them each month.

Also consider subscribing to a credit monitoring service that provides real-time alerts for any changes in your credit report. Most credit reporting agencies offer this service free of charge.

Certain credit cards offer this service and free FICO® scores, so see if your credit card carriers do. It’s also available from some even if you don’t have their credit card. Taking these proactive measures can help you stay ahead of any potential issues.

Create a detailed payoff plan prioritizing your credit card accounts and other debts. Use a tool like Experian’s credit card repayment calculator to organize your payments and target paying off balances more quickly over time.

Consider the debt snowball or avalanche methods for debt repayment, choosing the strategy that aligns with your preferences. Consider a side or part-time job and dedicate any income from those to your payoff plan.

Staying current on your existing accounts by making at least minimum payments on time will help build positive payment history. Lenders will consider this positive history when you refinance.

Continue paying all your bills on time, including credit cards, loans, utilities, and other bills that can affect your credit score. Payment history makes up the largest portion of your credit scores—35%. So consistently paying on time each month is key to rebuilding them.

Maintain positive payment habits by consistently making at least your minimum payments on time. Then, continue managing balances and limits responsibly. This not only boosts your credit score but also preserves goodwill with your lenders.

Work to reduce your credit utilization ratio, the percentage of the credit limits you use each month across all credit accounts, to under 30%. By paying down card and loan balances month-to-month, you will see your credit card utilization ratio go down.

If you consider using balance transfer credit cards as a strategy to lower credit utilization, use this method wisely. Once you get this important ratio below 30%, keep it there and watch your credit score rise over time.

Consider asking a trusted family member or friend with great credit to add you as an authorized user to one of their credit card accounts. As they pay on time, that can help supplement your credit history with positive entries on your credit report. Adding positive entries to your credit report makes the negative ones less impactful over time.  

You’re using this strategy solely to rebuild your credit score. So, be sure not make purchases on this credit card you can’t pay in full each month.

Order an updated copy of your credit report and scores from each bureau to check your progress so far. This is especially important if you don’t see significant improvements in your FICO® scores that can come from correcting mistakes on your credit reports.

There may be a fee for ordering your updated credit reports, since you only get one free credit report from each credit reporting agency per calendar year. This investment may be worthwhile for your credit rebuilding strategy.

Identify any negative items still appearing on your credit reports like collections or late payments from years past. Contact the creditors directly if you have questions about amount owed or how to pay (their phone number will be stated on the credit agent report). Dispute inaccuracies directly with the credit bureaus. For complex cases, consider consulting a credit repair counselor. But to avoid the potentially high-cost services and scams, be very careful to choose a government certified debt counselor in your area.

Check for and dispute entries you believe are incorrectly reported as belonging to someone else. Removing correctly reported bad marks from your credit report can substantially speed up your credit rebuilding.

Consider applying for a secured credit card if you need to further supplement your credit files. Most require a refundable deposit to open.

Responsibly using a small portion of the secured limit and paying in full each month adds positive information reported to the three bureaus. To ensure that, look for secured cards from major issuers that report to all three credit bureaus.

Alternatively, investigate credit builder loans that report to all three credit bureaus but don't require a large deposit.

When possible, consider requesting credit limit increases on any existing credit cards you've managed responsibly. Higher limits also positively influence credit scores by lowering your credit card utilization when you use the new credit moderately. After increasing your credit limits, keep balances low, and avoid maxing out your cards.

As you employ this strategy, your credit card and loan balances will continue shrinking because of your efforts. New positive entries will appear on your credit reports, too. Review your credit reports every four months to monitor your progress. If you’re not checking them monthly, get your FICO® scores, too. This will help you gauge your readiness to refinance your mortgage for a loan with possibly more favorable rates and terms.

Consider working with a government approved housing counselor who helps clients who’ve had poor credit refinance to get their advice tailored to your situation. You might get better rates if you talk to one of these experts.

Most mortgage lenders want to review at least 12 months of on-time mortgage payments before approving loans. So, it's important to be patient as you rebuild your creditworthiness.

Contact your existing lenders and credit card carriers to update your contact details, ensuring easy communication about your accounts. These periodic calls demonstrate both your active account management and your commitment to maintaining transparency with your lenders.

Making periodic calls to discuss your account with creditors also demonstrates proactive account management. You also can ask them for ways to improve your credit standing with them.

If you followed this strategy, your meticulous efforts over the past year should have improved your credit scores. This consistent record of financial responsibility makes you an appealing candidate for refinancing options.

Order your most recent credit reports and scores from each of the three major bureaus. Compare these new scores with those from a year ago to measure how much you've improved.

Stay on Track

Completing this 12-month process will be a significant milestone in your ongoing financial journey.  Continue to monitor your credit and keep up the good habits you've developed by reusing this strategy each year. Doing this will ensure you are ready to refinance whenever it is most advantageous for you. 

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BlueHub SUN Homeowner LaShawn

After falling prey to a scam, LaShawn was about to lose her home to foreclosure. A judge advised her to look into BlueHub SUN. She got to keep her home in Waldorf, MD and has since successfully refinanced out of the program, paying off her mortgage and shared appreciation mortgage, and retaining significant equity for herself. 

Read more about LaShawn's triumph story

About BlueHub SUN

Operating in 11 states, BlueHub SUN has been a last resort mortgage lender since 2009, the height of the housing crisis. We’ve helped nearly 1,100 clients stay in their homes.

Our expertise in foreclosure prevention makes us a trusted resource for navigating that process. Complete this inquiry form to learn more about how BlueHub SUN can help you.

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