The better your credit score, the better rate that you can get on a home loan. There are some steps that you can take to improve your credit score. Although credit repair often has a bad name because there are companies that fraudulently try to clean up your credit for you, there are some completely legitimate things that you can do to get your credit score up. With a little time and patience, you can get your credit score up in preparation for purchasing your house.
The first thing to do when you want to get your credit score up is to check for inaccurate information. Sometimes creditors fail to report when you have paid them off. Your credit report might end up with someone else's information on it, especially if you have a relative with a similar name. You may even find that you are a victim of identity fraud. If there is inaccurate information on your credit report, you need to send in a letter of dispute to the credit reporting agency (Experian, TransUnion, or Equifax) that is reporting the information. You can find a sample letter of dispute on the Federal Trade Commission's web site.
This may sound simple, but it can make a big difference in your credit score. Your credit score can receive a serious ding if you don't pay your bills on time. Recent late payments will make a bigger mark on your credit score. Resolve to make on-time payments from now on. If you don't have the money to pay your bills on time every month, you might not have the money to buy a home either.
Your debt to available credit ratio makes a difference in your credit score. If you are maxed out on all your credit cards, your credit score will go down. By paying down your credit cards, you will free up your available credit and raise your credit score. Try to aim for having 50 percent of your credit available.
Taking out new credit can lower your credit score. Once you have decided to purchase a home, try to refrain from taking out any new credit until after your home loan has closed. Making credit inquiries will also lower your credit score as well. Unless you have too many credit card accounts, you don't need to close out your credit accounts, but you should avoid opening any new accounts.