With mortgage interest rates so low, 2015 is a great year to buy a house. But if your financial history is rocky, you’ll want to focus on credit repair first.
Having a good credit history is a crucial piece of the puzzle when you’re in the market for a home loan. Lenders want to know that you’re reliable and will make your monthly payments. Even if you think your prior credit habits won’t keep you from getting a loan, your credit score rating will help determine the interest rate the lender will set for your particular loan. The better your credit history, the lower your rate will be.
So if the thought of buying a home this year is on the radar, you should take care of any credit issues first. Things you should do include:
- Get a copy of your credit report from www.annualcreditreport.com. Look it over and check for accuracy. It does sometimes happen that credit reports have mistakes. Perhaps a creditor is listed that isn’t yours. Or perhaps someone who has the same name has their information on your report. You might even find that you’re the victim of identity theft. If you do find anything suspicious or that doesn’t look accurate, contact the credit reporting agency or the company that issued the account.
- Pay off collections or judgments. Lenders will frown upon collections or judgments. Get these paid off as quickly as possible. If there were special circumstances surrounding them, submit them in writing.
- Make all your payments on time. Part of your credit score is derived from your timeliness habits. If you’re consistently late on payments, it will be reflected in your credit score. Get your payments in on time.
- Don’t open new lines of credit. If you want to buy a house in the coming year, don’t purchase a new car or make any major purchases.
- Keep balances low. If you have too much debt, it can lower your credit score. Lenders like to see your balances low on high credit limits. It shows financial responsibility. Try to stop using the credit cards and pay more than the minimum to decrease the balances.
- Don’t close accounts that have a balance. Although you might be tempted to do this because you think it might help your credit score, it actually helps your credit score to have those accounts that don’t have a balance. It shows that you don’t use every type of credit you have.
Once you’ve taken care of your credit repair, the next step is to get preapproved for a loan. Once you’re approved, you won’t have to worry about it while you’re looking for a house. You’ll also know how much you’re approved for so you’ll know how much house you can afford. And, if you’re in a seller’s market, it will put you in a strong position when you make an offer on a house.
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