If you’re sick of renting and are ready to put those monthly payments toward your own investment, then purchasing a home of your own may be in your near future. However, it’s not as easy as walking into the bank, applying for a loan, and being handed the keys.
Why Credit Matters
Usually the purchase of a home requires that you make a down payment equaling a certain percentage of the cost of the home. The amount you are required to put down often depends on several factors, including your credit score. In addition to the down payment, your credit score could affect your interest rate and whether or not you’re approved for a mortgage loan at all. It’s important that your credit is in tip-top shape before you apply for a home loan and begin the process of purchasing your home.
Review Your Current Credit Report
The first thing you must do is review your credit report and assess your current situation. You are entitled to a free copy of your credit report every year from the three credit bureaus. Look it over thoroughly and make a note of anything that seems out of place. Incorrect information is not uncommon on credit reports, and you don’t want any misreporting to bring your credit down. Fortunately, you can dispute anything you think is incorrect and have it removed, and this will improve your credit score immediately.
Ask For the Removal of Small Mistakes
While reviewing your credit report, pay special attention to the “adverse accounts” section to see what may be bringing your score down that is within your control. If you missed a payment here or there, but not consistently, you can ask that some of those mistakes be removed by the reporting institutions, and this will improve your score immediately, as well.
Up Your Credit Limit
Another way to improve your credit score quickly is by increasing your credit limits. If you have a balance on your credit card you can’t immediately pay off, you could try to increase the limit on the card to improve your debt-to-credit ratio. That way it looks like you use less of your available credit even though your payments and financial situation hasn’t changed. Just be sure to not increase your spending along with the availability of more credit.
Set Goals to Improve
If you see that your regular late utility payment or some missed phone payments are bringing your score down, set some goals to improve your payment history. For example, you could set up an auto-draft account so you don’t have to remember to send it in yourself. After a while your payment history section will clear up, but this can take time, sometimes up to seven years. This is why it’s important to start improving your payment history and money habits immediately.
Patience and self-control are important attributes to have while contemplating home ownership. Taking the time to improve your credit and financial situation can pay off in the long run as you qualify for better interest rates, so take your time and do it right so you can purchase the home of your dreams.
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