October 3rd, 2008
5 Steps to Get Your Credit Ready To Buy a Home
If you are thinking about buying a home in today’s market, it’s never been more important to make sure that your credit rating is going to be sufficient. Banks are closing their doors to many that are deemed to risky, and if you want to get an approval for your loan, you will need to have a credit score that will put a bank at ease. Let’s take a look at the steps you need to take before you apply for your home. We recommend starting these steps around six months before you apply for your home loan.
1. Know your credit score and monitor it throughout the whole period.
In order to know how a bank is going to view your application, you need to have the same information they use. Your credit score, is the main determinant that most banks will use to gauge your credit worthiness. This is not a stagnant score, so we do recommend checking it regularly to see what position you are in. The higher your credit score, the better your chances are of getting your home loan. Ideally, in today’s market, you should have a score of at least 700 or more.
2. Pull your credit report.
In order to see what is affecting your credit score, you’re going to need to get a copy of your current credit report. Every consumer is entitled to one free report every year from all three credit bureaus. You can access yours by visiting AnnualCreditReport.com. Once you have a better idea of what you’re working with, you can take steps to get your score up.
3. Correct any errors.
Simple errors or large errors can all be a detriment to your score. Read through your report carefully and contact the credit bureaus to fix any incorrect information if necessary. This may mean filing a dispute with them, and giving them 45 days to verify and correct the information. This can be done online, by phone or through the mail.
4. Pay down your credit card balances.
You don’t want to close your accounts, since this will actually lower your credit score in many cases, but you do want to free up as much available credit as possible. If you are carrying high balances on all of your cards, this is a sign to a bank that you are not a good risk. Make sure that you pay all of your bills on time.
5. Settle any outstanding issues.
We all forget about little bills here and there, but chances are, collection agencies haven’t. A collection on your report can have an enormous impact on your overall score, so these will need to be settled and removed before you proceed.
As you take these steps to fix your credit, by monitoring your credit score, you will be able to gauge your progress. Once you have your score up to an acceptable level across all three bureaus, getting a loan should be much easier.
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To add to #4 – evenly distribute your credit balances. Don’t be maxed out on one card and paid off on all your other cards. That one card at or near your limit will shave some points off your score.