When it comes to buying a home, credit is everything. The higher your score, the bigger the approval amount. Below are tips you can use when preparing your credit to buy a home.
Your credit score dictates whether or not you can get a loan and for how much. It also dictates your interest rate. A poor credit score means a larger down payment will be required along with higher interest. That is why you want to prepare early and thoroughly.
Obtain a free copy of your credit report. You are allowed one a year before your credit score is affected. this will tell you where you stand. If you have any questions about the numbers, ask someone at your bank to explain it to you. Inform that person you are preparing to buy a home and inquire about what you can do to improve your score if doing so is necessary.
Know how your credit score affects the home buying process. Most mortgage lenders use FICO scores so you’ll want to ask detailed questions if you are unsure about how it all works. Contact a mortgage company for more information. When applying for a mortgage, you’ll need a track record that proves you are or will be a responsible home owner.
Avoid making any unnecessary purchases. The best way to save money is to avoid spending it.
Don’t open or close any new accounts after determining you are planning to buy a home. Doing either or both of these things can definitely affect your credit score, quite possibly in a negative way.
Lower or eliminate debt altogether. Begin by paying off all credit cards. Start with one card and pay more than the minimum monthly payment. Keep paying on all your other cards, but concentrate on getting rid of the debt owed on that one specific card. Pay as much as you can on it each month. After it is completely paid off, concentrate on another card and repeat the process until they all have a zero balance.
Pay off any and all outstanding loans. This includes school and business loans. These generally take a while to eliminate, but concentrating on them once your credit cards have all been paid off will make the process easier.
Save as much money as possible. Whether or not you are yet debt free, begin putting money back when and where you can. Even the smallest amounts each month will make a huge difference in the future. Put your savings into a special account and don’t touch it unless you truly have an emergency. If possible, open two savings accounts: one for emergency situations and one for the purchase of your new home. You’ll be amazed at how much money you can save up over time and what this will mean for you as a home owner.