When buying a home, the majority of your financing options depend on your credit score. So before you apply for a home loan, make sure your credit score rating reflects positively on you as a borrower. You want to put your best foot forward, because even with interest rates at historic lows, you still need to qualify for a loanto take advantage of them. Take the necessary steps to improve your credit score before you apply for a loan, and you’ll have better chances of qualifying for the best possible financing rate. Rebuilding or improving your credit score isn’t difficult, but it does take time, dedication, and careful budgeting.
Repay Your Debts
Start repairing your credit through debt repayment. Take a look at your budget and figure out if there are any areas where you can cut back. Do you really need to pay $100 a month for cable? Can you cut back on electricity and water use? Can you carpool to work to lower your gas expenses? Allocate any savings you can find to debt repayment. Repay your debts with the highest interest rates first, so your more expensive loans don’t continue to grow. Very often, that means repaying your credit card balances first, since they have such high interest rates. Once you’re out of the hole with your credit card company, move on to lower-interest debts like student loans or auto loans.
Check Your Credit Score
After your debts are repaid, get a free credit report from AnnualCreditReport.com, where you can request reports the three major credit bureaus, Experian, Equifax and TransUnion. Make sure there are no fraudulent charges or other issues. Credit reports can alert you of late payments that may have escaped your notice or if there are credit account you may have opened and then forgotten about. If you find an error on your credit report, contact your credit card issuer so it can be resolved right away. There’re required by law to investigate your disputes. Be sure to repay your credit cards and resolve any delinquencies before applying for a home mortgage. A realistic look at your current credit score gives you a solid idea as to how much you need to improve; it gives you a solid number to improve upon.
Please note that if you have credit cards that you forgot about, it may not actually be in your best interest to cancel them right away. By closing an unused card, you’ll lower the total amount of credit that’s available to you. That will raise the percentage of your total credit used, which will lower your credit score.
Pay Bills On Time
You can also help improve your credit score by paying your billson time. If you’re forgetful, try setting up automated payments online.That way your biller can just deduct your bill directly from your bank account. You won’t have to worry about missing payments or late fees. You could also consider setting up reminders on your phone or computer that update you regularly about the status of your bill. Showing that you have a credit history of making successful, regularly scheduled payments will show lenders how reliable you are.
When you’re considering buying a home, getting pre-approved can give you a realistic look at how much financing you’ll receive and how much you need to save for a down payment. Pre-approval can also help you estimate the toll your mortgage payments will take on your monthly budget.If your pre-approval shows you that your finance aren’t ready to handle a home loan yet, wait to move forward. Continue to build your credit score by keeping your credit card balances low, paying your bills on time, and avoiding any new debt.
Buying a home can be an exciting experience, but it requires you to jump through quite a few hoops. Make sure your credit is in peak condition before you apply to ensure that you have a positive experience when applying for a loan and financing a house. All your saving will pay off when you qualify for a low interest rate; it will lower your mortgage payments and shorten your repayment period. The less you have to pay, the faster your home will be completely yours.
Byline: Rachel is a grad student who is all too familiar with loans and strict money management. She also writes articles for Check ‘n Go on responsible borrowing, investment, and budgeting.
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 Purcell, Patti. “Getting your credit score in shape for home ownership.” Citizens First. n.d. n. page. Web. 23 Apr. 2012. <http://www.citizensfirst.com/financial-life-archive/item/1-getting-your-credit-score-in-shape-for-home-ownership.html>.
 Orsini, Patricia. “Get Credit Score in Shape Before You Shop For Home.” AOL Real Estate. 15 07 2010: n. page. Web. 23 Apr. 2012. <http://realestate.aol.com/blog/2010/07/15/get-credit-score-in-shape-before-you-shop-for-home-sponsorship/>.