BestNewCreditCards.com

By Ed Nailor

Recently I was asked about how to prepare for buying a home and getting credit in the right place. The young man had bad credit but made good money. His wife had great credit, but only a fraction of his income. The following is the advice I gave:

Wow... it amazes me the advice that people give. As a financial specialist in the mortgage and credit fields, let me give you some free advice on how to proceed over the next year or so.

Before I do, understand that regardless of your marital status, mortgage lenders use the credit score of the primary wage earner to calculate the programs that can be used. For example, if your future wife lost her $20k a year job, you could still probably get by on your $80k. However, your wife will probably not be able to handle the bills if your income goes away. So your credit must improve... cannot count on her to make it happen.

First, in regards to old credit. Unless you have PROOF that the account was not yours or was indeed paid off on time, do not challenge old debts! Challenging old debts with no proof is the technique used by "repair" scam artists. Unless you have proof, this will do no good. (The original creditor has proof that you signed the application, etc.) WHAT YOU SHOULD DO is this... since you are looking at a year or so down the road, call the old debts up and make settlements on the accounts (see How to Settle with Creditors.) Make sure before you pay them anything that you have proof of the agreement in your hand. There is a good chance that the creditor will not tell the credit bureaus that you paid them and you will have to prove the settlement was agreed and paid. With an agreement in hand prior to payment, and proof of payment, now you can get this updated yourself. Your scores will suffer initially since the old negative credit will have a new date of activity, but with a year to go, it won't be long term.

Second, make your credit better by creating POSITIVE credit on your reports. This is easy... One revolving account (a credit card) and one installment account (NOT A FINANCE COMPANY) should do the trick. With the credit card, make a small charge each month ($20-30 of gas) and then pay it off each month when the bill arrives. With the installment loan, seek out a local credit union and open a secured loan with them that is automatically drafted from savings. Then put the loan money into the savings so the loan pays itself back! A 12 to 24 month terms should work well for your situation.

Finally, open a joint account with the two of you and make as many deposits into that account as possible. Some alternative lenders will use bank statements to calculate your income. This way they will use whoever's score is the highest. (Avoid job related direct deposits as they give away how much each of you make, and make actual deposits, not transfers as many lenders will not count transfers.)

In less than a year your credit will be well recovered and on your way to a great mortgage program that works for you. I would advise speaking to a broker when it is time as they usually have access to hundreds of lender programs, where your big bank has 5-10 programs.