Nothing beats walking into a room and echoing a simultaneous “wow” as you and your partner gaze upon the vaulted ceilings, hardwood floors, rustic fireplace and spacious living room of a new house. “This is the one,” you might say. “I can definitely see us living here and the price is right,” your spouse might echo. However, once in the nerve-wracking realtor’s office, she may come back with the most dreadful announcement. Your credit info was not approved by any of the lenders! Oh the shame! Oh the horror! Your dream house will have slipped through your grasp all because you didn’t pull up your free credit scores online prior to house hunting and you didn’t take the necessary steps to ensure that you and your partner had clear credit months in advance. In fact, one-third of all credit reports have inaccuracies and errors that prevent people from getting credit, even though they qualify. Don’t be one of those cases!
Once you know your credit scores, you can work out any blemishes before home shopping. This should be done six months to a year before you plan on buying. If you have a score higher than 700, you needn’t worry. If you’re in the 500s or 600s, then try to pull your score up 100 points to get the best mortgage interest rates. There are five ways you can do this in six months time. First, you can reduce your credit card balances down to 30% of their credit limits.
Secondly, you can cut your credit cards in half, but don’t cancel your account because you’ll lose points and increase the amount of available credit you’re using up. Thirdly, it can boost your credit score to mix up your credit portfolio. A healthy portfolio may include three unsecured credit cards, as well as a form of secured credit, which is like a student loan, auto loan, home equity loan or installment loan. Lastly, you can negotiate with all of your creditors to remove late payments, which can improve your credit overnight.
Credit info on mortgage credit reports and your FICO number are very important in determining what kind of deal you’re going to get on your house; however, it’s not the only factor. Obviously, the more you’ve saved, the better off you are. You should have saved 3-5% of the list price to put as a down payment, although 20% will prevent you from having to pay for mortgage insurance. Other offsetting factors can balance low credit scores: a large down payment, large cash reserves or a low debt-to-income ratio can all work in your favor.
If you have suffered a foreclosure or bankruptcy, then your credit info will show scars of as much as 300 points. It may take 10 years to rebound, but many people can be ready for home ownership within 2-3 years. Your confidence is undoubtedly shaken by the dissipation of your slice of the American Dream, but you can rebuild poor credit scores over time. If you can’t see yourself renting, then you may qualify for a Federal Housing Administration loan, which doesn’t check in with the credit report services.