Weighing in on Your Credit Situation

Credit has a major impact on your home buying experience. Your credit score will weigh heavily on what interest rate you will get, how many points you will have to pay, your down payment, and even your PMI. If your credit is very poor, it can even keep you from obtaining a mortgage. However, there are some things you can do as you prepare to purchase a home to improve your credit score before you start applying for home loans.

The first thing you need to do is obtain a copy of your credit report. Many people have no idea what their credit score is, and they also have no idea what information is on their credit report. Before you apply for a home loan you need to contact the credit reporting agencies to get copies of your credit report.

You have a right to one free credit report from each agency per year. Here are the three major agencies and their phone numbers:

Equifax: (800) 685-1111        

Experian: (888) EXPERIAN

Trans Union: (800) 916-8800

If you review your credit report and there are errors, you need to contact the credit reporting agencies as soon as possible to rectify the situation.

After you review your credit reports, you also need to begin getting your finances in order. The best way to get good credit is to pay off your bills on time, every time. If you have a lot of credit card debt, you need to begin paying off your debt bit by bit. One of the best methods to use in paying off your debt is called the snowball method.

This method has you paying off your smallest debt and adding that amount to your payment on your next smallest debt until you have combined your payments to pay off your largest debt. It is one of the most effective ways to decrease your debt to income ratio, which impacts your credit score and your eligibility for a home loan.

Finally, you need to avoid opening up any lines of credit and focus on closing your credit card accounts. If you have too many credit inquiries on your credit report it will lower your score. Avoid opening up new credit cards.

Also, if you have too many cards – even if you have no balances – your credit rating will be lower. You need to minimize your use of credit when you are applying for home loans.

As you build back up your credit rating you will also increase your chances of getting a better interest rate and lower monthly payments on your mortgage. Getting your credit in better shape prior to applying for a home loan will work in your benefit.

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