If you intend to finance a home purchase by way of a mortgage, you will need to start looking at your credit worthiness months before you start looking for a home. If you don’t have the right credit history, then you could be in for a disappointing time when you do want to buy that home. For most people, fixing a credit score is not a difficult issue, however, you may be surprised at how you should go about fixing that credit score. Here are a few tips that you should be looking at.
Fix your credit report – one in four credit reports are just plain wrong. Get a copy of yours and go through it carefully. Make sure every entry is accurate and where there are problems, contact the creditor and ask them to fix the error. The FTC has more information on correcting any problems with your credit history.
Improve you debt to credit ratio – if you have several credit cards, don’t close any. At the same time, don’t apply for any new credit cards. Your aim should be to reduce your balance on each credit card. This shows responsible spending, and a good debt to credit ratio. If you have four cards with a $10k limit, and you only have $2k on each, that’s a ratio of 8:40 – close one card and move the debt to another, and you’ll have a ratio of only 8:30. If you apply for new cards, your habits may be questionable. Limit new credit and control your spending for at least six months prior to looking for a home. Sorry, no fancy holidays on credit.
Increase your savings – while this doesn’t affect your credit score directly, it will affect your ability to get a loan. If you can show a regular saving pattern – and regular is the key term here – then you’re demonstrating an ability to service your mortgage. By the way, your savings do not have to be in a regular savings account; voluntary retirement plan payments will also qualify as savings, and a big retirement plan balance is also a good look.
Removing defaults – if you are behind in any payments, get them up to date early and request removal of the default notice. At the same time, be sure you don’t incur any new defaults.
Good rental history – property managers often list rental defaulters with credit reporting agencies so keep your rent up to date. Here’s a little known fact – if your rental history is perfect, your property manager can also add a good report to your history so ask them if they will oblige. Every little bit helps.
Get your credit history and finances in order well before you intend looking for a home. If you do it at least six months prior to buying, and maintain it in good order, you’ll find obtaining a mortgage much easier – and you may even qualify for lower interest rates as well. Whatever you do, don’t leave it until the last minute to fix your credit score – that’s definitely not the best look when applying for a mortgage.