Boosting a Bad Credit Score to Buy a House

Heather and her husband got caught up in the neverending downward spiral of taking payday loans to pay off payday loans. Each time they got a paycheck they had to use the check to pay off the interest on those loans and then didn't have enough to pay their utility and other bills. Finally, they realized they were in over their heads and filed for Chapter 13 bankruptcy in 2008.

They're nearing the end of the bankruptcy, which will be completed by December, and wanted to buy a house. "We wanted to do what we needed to do to improve our credit score so we could buy a house," Heather said. They worked with specialists at Flagship Financial to improve their credit history and boost their score, so they could buy that house.

When they started working on their credit score in June 2010, Heather's was 575 and her husband's was 590. They were advised to take several steps to improve that score which needed to be at least 640 before they could get an FHA loan. The most important thing was to develop a budget. "If you don't have a budget then you're going to fail," Heather said.

They were also told they needed to get a secured credit card so they could show a credit history of paying their bills on time. At first they made the mistake of paying the bill even before the credit card statement was out. But, Heather explained that didn't help because a zero balance was reported to the credit reporting agency. So they changed tactics and now keep about a 30 percent balance on that card each month and pay if off when they get bill. They don't allow the final bill to be reported to the credit agency to be more than 30 percent of their available credit, so they will make a payment before the statement closes if the bill will show a higher balance.