Listener Questions: Home Buying, Bad Credit

Alex Chadwick talks with Day to Day personal finance contributor Michelle Singletary. This week, listeners get answers to questions about home buying and bad credit.

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ALEX CHADWICK, host:

We're back with our weekly conversation about personal finance, and joining me to answer our listeners' money questions is our money guru Michelle Singletary.

Michelle, welcome back.

MICHELLE SINGLETARY (Personal Finance Contributor): Thank you.

CHADWICK: All right. Here is a question sent in by a listener: `I am a current college grad. I've just started a new job in an architectural firm in Michigan. I'm currently looking to either buy a new home or a condo. I was hoping to get some advice on where I should go with this decision and what steps might be best for my personal finance.' Michelle.

SINGLETARY: Well, first of all, congratulations on your new job and the fact that you're already thinking about wealth-building, because the fact of the matter is the best way to build wealth in America is home ownership. For this person, I'd recommend, first, two Web sites that are wonderful in terms of giving particularly first-time home buyers some information, Fannie Mae and also Freddie Mac. Also check with the state housing office, because you may be eligible for some first-time home buyer programs. You want to do it when you first start your new job because there's sometimes income limits, and so that's the time that you would qualify for these first-time home buyers programs.

CHADWICK: Hmm. Yeah. OK, here's one from a North Carolina listener who writes: `Overall, my economic situation is improving this year, so I'm renewing my efforts to improve my credit after a rough two years. However, earlier this year, my car was repossessed, two of my three credit cards were charged off against me. This has dropped my credit score down around 550. Other than increasing my income and spending wisely, what would you suggest I do to dig out of this?' I'll just note, Michelle, 550 as a credit score is not so good; 750 would be good.

SINGLETARY: That's right, 550 is poor; anything, oh, in the mid-600 range, 620, 650 is fair; 670 to 700 is good; and anything over 700, you're golden. You're going to be able to get the best rate. But listen, all is not lost. Your credit score is moving number, and every day is a chance for you to improve that number, every day, every month, because it keeps updating. So if this person has one of those cards left--now this is going to sound counterintuitive to a lot of people, but they want to charge a few things on that card then pay off most of it, not all of it, and pay it on time. And I say most of it because you want to show that you can carry debt and pay for it on time. That is one of the biggest ways to improve your credit score going forward.

And they said `other than getting more income and spending wisely'--well, listen, cut your expenses, and then apply that to your debt going forward. But I encourage you that if you're in debt trouble, all is not lost. Just have really good payment habits and keep your debt low and your credit score will improve.

CHADWICK: Well, how long are we talking about? If one followed the strategy that you're suggesting, which does sound like a good idea, it could take a long time to kind of get a good response.

SINGLETARY: It can take a long time depending on some other things that are in your credit report. But you know, six months to a year, you can see some improvement. And, listen, if that person can get that at least over the 600 hump, they're in better ground over 600--not great, but better. Even at 550, you can still buy a home. And then as you improve your credit, refinance. The same thing with a car. If you absolutely need a car and someone's going to charge you, you know, double-digit interest rate or, you know, 20 percent--I mean, it sounds crazy, but if that's your only way and you need that transportation, you know, later on, you can refinance that loan.

The message I wanna give people that--if you're in credit card debt is that don't beat your self up, but going forward, you have got to practice better debt management habits.

CHADWICK: Michelle Singletary writs the column The Color of Money for The Washington Post, and she's regular personal finance contributor for DAY TO DAY.

Michelle, thank you for your advice again.

SINGLETARY: You're so welcome.

CHADWICK: DAY TO DAY is a production of NPR News with contributions from slate.com. My colleague Noah Adams will be here for the next few days. I'm Alex Chadwick.

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