Score Big with Mortgage Lenders -- Improve Your Credit!

You’ve made the decision to buy your first home.  First of all, congratulations!  That’s an awesome accomplishment; and, an awesome responsibility.  So, if you haven’t already, it’s time to make sure that all your “ducks” are in a row.  Of course, by “ducks,” we mean… credit.

Credit scores can range anywhere from as low as 300 to as high as 850.  If you are lucky enough to have perfect credit, congratulations, again – but, for those on the not-so-high end of that spectrum, don’t panic.  There are ways to boost your credit score before buying a home.

If you don’t know what your credit score is – find out.  Many lenders rely on the FICO credit score, which is actually reported by three major credit bureaus:  Equifax, Experian and TransUnion.  Annualcreditreport.com is a government-mandated site that offers free credit reporting. 

Remember, if there is anything negative against your credit, it’s best to know about it and deal with it.  You may even see something that doesn’t seem quite right on your credit report.   By all means, dispute it.  Credit bureaus may work with you to remove errors, which is an easy (and instant) way to boost that credit score.

Before you apply for your first home loan, there are some definite “do’s” that will help you improve your credit: 

Do – make a budget and stick to it.  Short, sweet and oh-so-easy, right?

Do – hang on to a secure credit card and pay those bills on time.  Yes, use your credit and show you can handle those payments.  Paying for everything in cash is not the answer to improving your credit. 

Do – pay ALL bills on time!  That means utilities, cable and even that cell phone bill.  You want to establish a long history of on-time payments.  Long history = at least 1 year.

As always, for everything you should do, there are twice as many things that you shouldn’t: 

Don’t – apply for a new credit card at least 6 months before you apply for a mortgage. 

Don’t – cosign for a loan for someone else at least 6 months before you apply for a mortgage.  Not your best friend, not your cousin… no one.

Don’t – close your credit cards.  It is actually better to have available credit with nothing against it than to have no available credit.  Most lenders want to see you using less than 30% of your total credit limit.

Don’t – settle debt just because you plan to apply for a mortgage.  It won’t necessarily improve your financial situation. 

Don’t- buy a car or any other major purchase before you apply for a home loan

Don’t – shop around for credit.  Each time you do, your score gets checked… and lowered.

Finally, DON’T get discouraged.  If you think you have everything in order, but are still denied when you apply for your first home loan, DO check with another lender.  Just like credit bureaus factor your score differently, so do lenders.

When you think you're credit is up to par, apply for a mortgage pre-approval. If you’re still not sure you’re ready for all this, contact a local mortgage consultant who can give you more personalized advice.