Buy a House With Bad Credit in Arizona
Most Arizona down payment assistance programs require that you have a minimum credit score of 640.
If your score is below 640, don’t worry. Many home buyers that we have helped started with a credit score under 640, and we still helped them qualify by providing access to credit education and tools to quickly boost their credit score.
Depending on your circumstances, you may need to utilize the help and expertise of a credit professional. Who should you work with? There are a number of credit repair companies the use different strategies, offer different price ranges, and obtain different results.
We recommend Sam Parker and his team of professionals at mycreditguy.com.
Here is why:
- They get results
- They offer a lot of free helpful advice
- They do not charge upfront fees
- They charge a fair price for their services
- They are based in Arizona but work throughout the United States
What is a Credit Score and How is It Derived?
At its heart, the loan approval process is based on the philosophy that past credit history demonstrates most effectively your attitude towards paying bills and credit obligations. Most banks have now adopted minimum credit score requirements that a borrower must meet in order to be approved. Do you know what credit score is needed to buy a house in Arizona? It is important to have an understanding of what a credit score is and how it is derived.
According to MyFico.com, a credit score is calculated from several different pieces of data in your credit report. This data is grouped into five categories and considers both positive and negative information in your credit report.
A credit score can range from as low as 300 to as high as 850. So how do they do it? The exact formulas are not made public, but the following components have been disclosed.
Payment History (35%)
Your payment history is the most important category and has the greatest impact on your overall credit score. Each month, as you pay your bills on time, it improves your credit score. On the other hand, late payments can have a dramatic negative affect on your credit score. The more recent you are late, the lower your credit score and a history of late payments on several accounts will cause more damage than late payments on a single account.
A quick list of major negative items that can significantly lower your credit score are:
- Late payments over 90 days past due
- Public records such as bankruptcies, tax liens, judgments, etc.
- Collection accounts
- Charge-Offs
- Repossessions
- Foreclosures
- Short Sales
Amounts Owed (30%)
It surprises me how many people are not aware of the large role that “amounts owed” plays in the make-up of their credit report. Keep balances low on credit cards and other “revolving credit”. High outstanding debt can affect a credit score. Pay off debt rather than moving it around. The most effective way to improve your score in this area is by paying down your revolving credit. In fact, owing the same amount but having fewer open accounts may lower your score. Don’t close unused credit cards as a short-term strategy to raise your score. Don’t open a number of new credit cards that you don’t need, just to increase your available credit. This approach could backfire and actually lower your score.
The two standard types of accounts that dominate a credit report are installment loans and revolving debt accounts. Installment loans, such as car loans or mortgages, have set payments and terms, and the lower the amount that you owe relative to the initial loan amount the better. Revolving debt accounts, like credit cards and lines of credit, have a greater impact on your credit score. I have seen that once your balance exceeds 50% of your limit on a credit card, it starts to drop your credit score. The higher you are to being “maxed out” or “over the limit”, the greater the drop. If you are able to maintain the balance of your revolving debt accounts below 30% of their limits, your credit score will typically increase month over month. Here is an interesting fact, if you want to increase your credit score, it is better to leave a small balance (again, under 30% of the limit) on your revolving account rather than pay it off. This may seem odd, but credit companies like to see a history of maintaining debt and good payment history. Therefore, an account with a small balance with a history of on-time payments will increase your credit score where as an account with zero balance will typically neither increase nor decrease your score. Of course, this creates a level of risk that you may miss a payment. Finally, having too much available revolving credit can also have an adverse impact on your credit score.
Length of Credit History (15%)
The longer your credit history, the better it is for your score. Also taken into consideration is how long it has been since you used certain accounts and the average account age of your existing open accounts.
If you want to buy a house with bad credit in Arizona, you should know that having thin credit and bad credit (ex. late payments or collection accounts) is a very difficult challenge to overcome in a short amount of time.
New Credit (10%)
The two things to consider here are the number of new accounts and new available credit and the number of recent inquiries that that appears on your credit report. Statistics prove that opening too many new accounts in a short period of time increases the risk of default as it could lead to “spending sprees” or “debt pyramiding”. If you need to open new accounts to establish (or reestablish) credit, a wise decision would be to open no more than one account every six months and no more than three accounts in a 24 month period.
Having too many inquiries in a short amount of time will have a negative affect on your credit score. One thing to consider is that you can shop for the best deal. Having multiple inquiries for the same purpose – such as shopping for a car – in a short amount of time (typically 30 days) is generally looked upon as one “hard inquiry”.
Types of Credit (10%)
Credit scoring models look for a healthy balance of installment debt, revolving debt, store charge accounts, etc. Some experts believe that the ideal mix for the best credit score is a few credit cards with relatively high limits and only a small balance on one or two of them along with an installment loan with a spotless six-month payment history. If you want to buy a house with bad credit in Arizona, the best way to do it is to learn why your credit is bad and correct it.
