If you are currently looking to purchase a home, there couldn’t be a better time. According to predictions, the current “buyer’s market” is supposed to continue throughout the year 2013. Interest rates are expected to stay very low, perhaps increasing to a mere 4% by 2014. The number of real estate sales remains quite low, only increasing minimally during the month of September. Because of this, analysts say that the housing market has quite a ways to go until marked improvement is noticeable, which means that homes will remain inexpensive.
One of the main obstacles to buying a home is a poor credit score. Even with the low prices, an exceedingly low credit score can be a big problem. Before you can begin improving your score, you need to obtain a copy of your full credit report. To obtain a free annual credit report, go to AnnualCreditReport.com. This website provides you a free credit report from all three credit bureaus. This will help you protect identity from theft.
#1 Correct Credit Report Errors
First thing after you obtain your report is to look for any errors and correct them as soon as possible. Errors are more common than people think. Even if a negative report is legitimate, try to dispute any small problems. If it is a relatively small amount of money, some merchants will be willing to remove it from the report as opposed to spending the time to thoroughly research the item.
Look for the reasons for your poor score. For example, maybe it was due to a late payment or a large debt ratio. If you know the reason for your poor score, you can correct it.
#2 Use Older Credit Cards
Another way to quickly improve your credit score is to use an older as opposed to a newer card. Accounts that are older are viewed as more favorable than ones that were recently created. Don’t make the mistake of closing an old account just because you rarely use it. Make sure to always pay off the balance each and every month. Additionally, avoid getting additional credit cards or fast loans.
#3 Wait on the New Car
If you are waiting on purchasing a new car, wait a little longer until you already have your mortgage. Having additional debt in the form of a car payment will make you less likely to have a mortgage approved. For the most part, lenders do not want to grant mortgages to individuals who have more than 40% of their income going towards payment of debt. Keep in mind that, typically, if you consolidate your mortgage shopping into a 45 day period, the credit report will list your inquiries as one combined inquiry as opposed to multiple.
#4 Increase Credit File
This doesn’t mean that you should go and apply for more credit cards. However, you should have more than three credit accounts on file. Less than this and you might not be getting a mortgage regardless of your score. Choose a credit card that has a low limit and pay it down each month. These cards will help you to build credit without increasing the amount of debt you have.
#5 Pay Balance On Credit Cards
Regardless of whether you are looking for a mortgage or not, you should be paying off your balances on both credit cards and revolving accounts. However, this is especially important for potential home buyers as it shows lenders that you are responsible with your debt. Begin paying down the card with the highest rate of interest and so forth. You want your debt ratio on each account to be lower than 36%. Remember that your mortgage will need to fit within this debt ratio as well. If you don’t have the money to pay your credit cards down, ask the companies to increase your limit. Don’t be tempted to spend more just because your limit is higher!
Being responsible with your finances is essential in every aspect of your life, particularly when it comes time to make large purchases such as a home. Fortunately, it is never too late to begin fixing your credit. However, keeping up with your debt and living within your means on a daily basis will reduce the stress that will inevitably occur should you find yourself looking for a mortgage with sub-par credit.
If you have negative factors on your report and are unable to have them removed, your only other choice would be to wait until the information is removed from your report, typically in 7 years. However, if you make sure to pay your credit and stay on top of your bills, your score is likely to increase dramatically in very little time. It is amazing how big of a difference only spending what you have can make when you are looking for a mortgage and a new home.