Bounding Back

The Raines family is working diligently to improve their credit scores and buy their first home

You don’t have to tell April and Gabriel Raines that financial missteps can have a lingering effect. “We’ve learned the importance of how you use credit,” says April. She recalls her college days, when she always paid $100 on her credit card bill. Not necessarily a bad idea, but April, now 27, would wait until she had exactly $100 to make a payment rather than pay the minimum amount due each month. Those late payments tarnished her credit rating.

Her husband, Gabriel, has a different problem. At age 30, he hasn’t established any real credit over the years. Having little or no credit history means that there’s scant information available to help lenders determine if he’s a good risk.

Such credit confusion has cost the Albany, Georgia, couple. When they began looking to purchase their first home a year ago, a mortgage broker advised them to pay off their credit card debt first in order to boost their FICO scores and qualify for better financing terms. Although the couple paid off $5,000 in debt, they still have sizeable student loans, and their scores only showed minor improvement, still averaging around 550. Though there are exceptions, in general, scores below 620 mean that a borrower may be required to carry a subprime mortgage — one that carries an above-prime interest rate.

The Raines family is now racing against the clock, working as fast as they can to build savings. April and Gabriel — along with sons Jordan, 6, and Justin, 3 — are paying $485 a month to rent a two-bedroom apartment that’s bursting at the seams. “The place has no yard and we have no equity,” says April. “Getting out is critical.”

The couple has shopped around, and they estimate that a three- or four-bedroom home with two baths will cost them about $150,000. If they qualify for a Federal Housing Authority loan, they will need a 3% down payment of $4,500, which they hope to save within six months. April and Gabriel have already saved roughly $1,000 and are confident that they’ll reach their goal because of their income: April makes $40,000 a year as a business manager at a hospital, and Gabriel earns $52,000 as a tire assembly specialist.

The couple is ready to make the sacrifices necessary to reach their financial goals, and together they are scrutinizing monthly spending for waste. Fortunately they’ve reduced one big cost: childcare. Now that their older son is in school all day, their childcare expense of $900 a month has been cut in half.

Although their immediate objective is to buy a house, April and Gabriel have additional goals, including saving for an emergency fund and increasing contributions to their employer-sponsored retirement accounts, from roughly 4% of their salaries to 10%. They are also looking to beef up savings for their sons’ college educations. But the couple’s debt load continues to hinder their savings and investing plans. They still owe $1,000 in credit card debt, $6,500 on a car note for April’s 2000 Honda Accord, a medical debt which

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