Steps to Start Budgeting for a Rent-To-Own Home

There are quite a few steps you can take to improve your credit score while you're renting-to-own. While it's always a very good idea to build up your credit score, it's a particularly important step to take on the path to homeownership. Having excellent credit can qualify you for lower interest rates and gives you more negotiating power with a lender to work out an ideal repayment plan. There are many tried and true methods to build credit and in this article we'll go over a few of the more effective ways to improve your credit score safely and responsibly.

Check the accuracy of your credit reports

Your first step to improve your credit is to check your reports for inaccuracies. You should contact the 3 major credit bureaus and dispute any discrepancies listed on your reports. The 3 main credit reporting bureaus are Experian, TransUnion, and Equifax. Typically, each of these bureaus will allow you to retrieve your credit report once per year for free, though you will have to go through an authentication process to retrieve it.

If you do find inaccuracies, and you dispute these items with the reporting agency, the results from this can often be immediate. You can start to see your credit improving in just a matter of weeks if the credit agencies decide that the disputed items are indeed inaccurate. Keep in mind that changes, while immediate, will also be small and incremental. It is totally normal to see 5 to 15 points at a time for each dispute. The key here is just to keep at it and not get discouraged as this is just the first step.

Setting a budget and lowering debt

Another important step is to setup a budget. Buying a home is an important financial decision and you'll need to make sure your budget allows room for the financial responsibility that goes along with a house payment and various expenses involved with owning a home.

When setting a budget, you'll need to figure out your debt-to-income ratio. This is a calculation that many lenders will use in determining your credit worthiness. The ideal debt-to-income ratio is 30%. This means that 30% of your income is going to paying off debts. Debts include anything that you pay on a monthly basis on things such as rent, utility bills, and car payments. (Note: this does not include expenses for gas, groceries, entertainment, etc.)

If your debt-to-income ratio is above 30% it may be necessary to eliminate some of your debts. This might include cancelling unnecessary accounts or lowering your payments by dropping unessential services. Doing these things will help you create a manageable budget.

Make sure you're making all of your payments on time and don't let any of your bills slip through the cracks The two biggest dings to your credit are late payments and accounts that go into collections.

Establish credit accounts

As with many things in life there's a catch-22 with credit. You can't get a credit card or loan without having good credit and you can't get good credit without having a credit card or loan. At first it may seem like the world is against you when you're trying to build up your credit score. If you've already taken the steps that we've previously outlined here, then you're on the right path. While your credit score might not yet be ideal, establishing a credit account and using it wisely can offer a major boost to the score.

There are certain things that you spend money on every single month. If you've setup a budget you know exactly what these payments are and you've set aside money each month to make sure those items get paid. So why not pay those things with a credit card. If you can't qualify for an unsecured credit card, then you should consider a secured credit card. These work just like a pre-paid card. You put money onto the card and then use it just like your debit card, the difference is that you have to keep money on the card by "making payments" just like a credit card. As an added bonus you get back the money on the card when you decide to cancel it. Using a credit card to purchase things like food and gas can be an absolutely great way to build your credit. You have to buy groceries and gas anyway so why not build your credit while doing so.

In review, clearing up your credit reports, setting a budget, and establishing credit accounts will help you build up your credit and set you on a path to homeownership. Following these guidelines will make you financially healthy at the signing of a rent-to-own agreement. Take some time to browse through our listings of rent-to-own homes to find a home that is right for you.

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