Buying your first home: Improving your credit scores

Posted by  on May 18, 2011

Credit scoring is a system of predicting creditworthiness. The FICO system of credit scoring is frequently used for evaluating consumer credit; conventional mortgage lenders typically require FICO credit scores of 740 or more for qualifying for the best mortgage rates and terms. Obtain and evaluate your credit scores before shopping for a mortgage or a new home.

Credit scoring: Your gateway to owning a home

Ordering your credit scores can be a daunting prospect, but you'll need to know where you are to know where you stand in order to qualify for the best mortgage rates and terms.Follow these steps for ordering credit reports and determining your credit scores from the three major consumer credit reporting agencies: Equifax, Experian, and Trans Union.

  1. Order your credit reports from each major credit bureau. You are legally entitled to one free copy of your credit report from each of the three credit reporting agencies annually. Visit the annual credit report website for ordering credit reports and purchasing your credit scores. This website is operated by the three credit reporting agencies and does not require a membership fee. If you are buying a home with another person, order credit reports and scores for each individual applying for the mortgage.
  2. Make note of your credit scores from all three credit reports. Credit scores typically vary, but if one is significantly lower, this could indicate a reporting error. Review all of your credit reports line by line for ensuring that the information contained in each report is accurate.
  3. Check personal information on each credit report. Incorrect addresses, birth dates and names can indicate errors in credit reporting, If you find or suspect errors impacting your credit scores, contact the applicable credit bureaus for filing a dispute. When reviewing account information, keep in mind that accounts can be transferred to other financial institutions, and that credit card issuers may change their names or merge with other companies and assume new names.
  4. Determine why your credit scores are low. Owing too much on multiple credit cards is a common reason for lower credit scores. Although credit card issuers may provide high credit lines, carrying balances exceeding one-third of your available credit can lower your credit scores.

Improving credit scores takes time. Don't fall for scams promising to "erase" bad credit. Following these steps will help eliminate credit problems and prepare you for buying a home:

  • Order your credit reports and scores.
  • Keep track of your credit scores.
  • Review your credit reports for errors and contact credit bureaus to correct them.
  • Determine reasons for low credit scores and make plans for reducing debt.

Please contact a credit counseling service or HUD approved housing counselor for assistance with managing excessive consumer debt or developing a household budget affordable for your circumstances.


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