5 Simple Ways to Prepare Your Credit for Home Buying
There are several aspects of the home buying process you can't really control: which houses come on the market; the asking price on your dream property; who you're bidding against. But there's one factor you can always address: your credit. It's a savvy move to examine your credit files at least four months ahead of your anticipated mortgage application. This gives you time to deal with the credit issues that can impact the interest rate you’ll pay—or whether you'll qualify at all.
Look at ALL your reports
Chances are your mortgage lender will look at all three major credit bureau reports—Equifax, Experian and TransUnion. Because these reports often contain differences, it’s wise to get a report from each of the bureaus at annualcreditreport.com. Keep in mind, too, that if you’re applying for a home loan with a co-borrower, they’ll also need to access their reports.
Check for mistakes
Many people buying a home for the first time are exposed to a shocking reality about credit: you can do everything right and still have damaged credit because of a reporting error. If you see a falsehood in your file—an account that's not yours, a balance that's wrong, etc.—reach out to the credit bureau reporting the incorrect information using the contact information provided in the report. If you can’t find the contact information, just tack a “.com” onto the end of the credit bureau’s name to get their web address.
Pay down your credit cards
After payment history, the next largest factor in your FICO credit score (the most popular one with lenders) is the percentage of your available credit in use on revolving accounts, like a credit card. Making significant reductions in the debt load on your cards can help raise your FICO score and potentially save you big.
Leave old accounts open
You may have been advised to close excess credit cards prior to applying for a home loan. While in general this is sound guidance, it needs a qualifier. Credit cards you’ve had open for more than two years should probably be left alone. Older accounts help your score by increasing the average age of your credit lines.
Avoid new credit applications
You're really excited about getting into that new home and really making it your own. So excited that you're considering opening credit cards at three different home improvement superstores! If this sounds familiar, it's time to slow down a bit. Once you've started home buying preparations, you should definitely limit the number of new store or general use cards you open. Ideally, you wouldn't apply for any new cards in this period.
When it comes time to find your house, negotiate, and close the deal, you'll have plenty to think about. Getting your credit straightened away in advance will give you one less thing to manage in this busy time. And you won't miss out on that ideal place because your credit isn't ready!