Credit Score Information You Need To Know

So you're interested in buying a home? Now is the time to start preparing for the home buying process. There are many steps to take and the sooner you begin, the sooner you'll be in your new home.  The first step is to take a look at your credit score, also called FICO score which is a simplified calculation of your payment history of debts and loans.  If you're borrowing money to buy a home, lenders want to know you'll pay them back in a timely manner, and a credit score is an easy estimate of that.

Get your score:  There are three major U.S. credit bureaus: Experian, Equifax, and TransUnion, that each release its own credit scores and reports.  Their scores are pretty much similar yet they are pulled from different sources such as rent payments and prior employers.  You can go online to each to get a free copy every 12 months but it doesn't include your credit score.  To get that, go to each company and you'll have to pay a small fee.  Some credit card companies offer free access to score and reports, so you can check with yours.  Once you've  got your report, be sure to review it carefully to be sure it's accurate.  If you find errors, it is important to send a dispute in writing to the bureau with as much documentation to back it up. It may take some time to resolve, but once the info is removed, you should have an increase in your score.

Assess where you are:  Basically, the higher your credit score is, the better your credit history is and you'll have better opportunities for a home loan.  The Federal Housing Administration (FHA) requires at least 580 to permit a 3.5% down payment, and major lenders require more, at least 620.  What can you do if your credit report doesn't add up quite yet? Don't worry, there are ways to get it back on track. 

Erase mistakes: If you have any one time late payments, call the company and ask that it be removed from your record.  Most companies are willing to tell their reporting division to take it off your credit report.  If you have a history of late payments, this won't work but for small errors, it's an easy way to boost your score.

Increase limits:  A simple way to increase your standing is to pay off your debt.  Not an option right now? Ask your credit card company to increase your credit limit. This improves your debt-to-credit ratio, which compares what you owe to how much you can borrow. It's best not to max out your credit limits and pay them down in a short period of time.

 

Pay on time:  Get into the habit of paying your bills on time. Sign up for automatic payments so it's a no brainer.  

Take the time:  Negative marks on your report can stay on your record for seven years.  Changing your habits makes a big difference in the "payment history" of your report which accounts for 35% of your score.  It's important to take the steps now to get your self on track.

Now that you've committed to getting your credit on a better path, you're ready to start saving for a down payment for your home.