Tips to Improve your Credit Score before Buying a Home
Many prospective homeowners find out the hard way the importance of a
good credit score when they apply for a home mortgage especially after
the subprime loan crisis. If you are considering buying a home in
the near future, it is a good idea to give your credit score a check-up
and then take positive steps to improve your credit score if you find
problems. Ideally, it is best to begin working on improving your credit
score at least six months before you plan to start shopping for a home.
The first critical step in taking care of your credit is to check your
credit report. Unfortunately, many people fail to take this all
important first step. Instead, they wait until they have applied for a
mortgage loan to find out from the lender that there are problems with
their credit scores.
By checking your credit score before you apply for a mortgage loan you
gain the opportunity to find out if there are problems which you can
correct and discrepancies that need to be removed. When you check your
credit report, make sure that you check all three of the national credit
reporting agencies. They are Experian, Trans-Union and EquiFax. You can get your
free credit report here.
Review your credit report carefully for items that may be erroneous. If
you believe that an item on your credit report is reported in error, you
have the right to contest it. To do so, you will need to contact the
credit reporting agency and explain why you believe the item is
inaccuracy. Supporting documentation such as receipts and cancelled
checks can help your claim. Alternatively, you can engage a
credit report repair services firm to fix your credit report or call:
If there are derogatory items on your credit report that are accurate
but which could cause problems in your loan application, you cannot have
them removed; however, you can take positive steps to counteract them.
In the event that you have missed payments in the past, take steps now
to get your bills current. Even if it means tapping into money that you
might be planning to use for a down payment it is essential that you get
your accounts current and keep them that way. Begin immediately making
your payments on time. There is nothing which can lower your credit
score more quickly than late payments. Ideally, make an attempt to begin
sending in your payments a few days ahead of time to make sure that they
arrive on time and you do not have any more late payments on your
record. If necessary, begin taking advantage of electronic payments in
order to make sure that your payments are made on time. Over time, it
can make significant difference.
Keep in mind that eradicating all of your credit balances is really not
the solution. In fact, credit can be your friend when you are looking to
make a big purchase such as a home. The key is to make sure that your
credit is positive not negative. Toward that end, avoid actually closing
out your accounts. Do make an effort to pay down your balances and keep
them paid down well below the minimum or completely paid off but do not
close the account. When your lender runs your credit to make a decision
on your mortgage application, he or she will want to see that you have
had a long credit management history.
After reviewing your credit history if you see that most, if not all, of
your credit cards are maxed out or nearly maxed out it is time to sit
down and plan an aggressive strategy for paying some of them down. One
of the critical factors that often determine your ability to be approved
for a mortgage loan is your debt to income ratio. In addition, high
credit card balances can drag down your credit score. Therefore, it is
important to look at paying off some of your balances.
It is generally better to begin with your highest-rate balances first.
Many consumers are tempted to move around balances when they receive an
offer from another bank that is good; however, before you do this
remember that the worst thing you can do when you are trying to make a
major purchase is to open new accounts.
By following these guidelines you can improve your credit score and
improve your chances of being approved for your home mortgage loan.