If you are considering buying a home for the first time or purchasing a home after getting back on your feet, you will need to make sure your credit is good enough to get the home loan you will require. There are several things you can do to make that happen. It takes about a year to repair credit, however, so keep that in mind when making your plans to purchase a home.
The first thing you need to do is get a copy of your credit report. There are three credit reporting agencies: Equifax, Experian, and Trans Union. You will need to get a copy of your report from all three agencies, as different agencies may show different debts and you want to be sure you have them all in line. You can get a free copy of your report from each agency once per year.
Once you have your credit report in front of you, highlight anything that doesn’t look familiar. Don’t be afraid to question debts on your report. There may have been a mistake or you may have been a victim of identity theft. If you see a debt that you thought was paid but is showing past due, you should highlight this as well. Follow up on these debts by contacting the creditors, getting original statements, and verifying that the debt is valid. If it is not, you can have it removed from your credit report, improving your score.
Once you have addressed any issues of this nature with your credit reports you need to make a list of the debts you owe. Total the list and see how much debt you have. You should work on getting this debt paid down as much as possible over the next year. The more you can pay it down the better off you will be. Contact the creditors and see if you can make payment arrangements. If you can, then your credit report will begin to show “paid as agreed” rather than “delinquent.” This can make a huge difference in your credit score as well.
Finally, you need to stop getting things on credit as much as possible throughout the year. While taking out new lines of credit such as a credit card can improve your score, using those credit lines and racking up debt will hurt your score. You also want to make sure you pay your bills on time for the entire year, including utilities and the payments on the debts mentioned above. All of this will help improve your score slowly over the course of the year. By the end of the year, unless you have an insane amount of debt, you should be able to qualify for a home loan.