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7 Steps to Make Yourself Creditworthy for Buying a Home

By on August 16, 2011 in Money

In today’s housing and lending market, you have to be a stellar borrower for a mortgage lender to even consider lending money to you. You may already be this type of borrower. If you are not, or if you are not sure if you are, then now is the time to take the steps that are necessary for making yourself look as creditworthy as possible, so lenders stand up and say, “Approved.”

Get to Know Your Credit

Unless you pull all three of your credit reports, you have no idea what kind of information is showing up on each report. It may be entirely good stuff—that you pay your bills, that you pay your bills on time and that you do not carry too much debt. It may be entirely bad—that you don’t pay all of your bills, that the bills you do pay you do not pay on time and that the amount of debt you carry is far bigger than it should be. Take advantage of pulling your free credit report at least once every 12 months from each of three credit bureaus:

  • Equifax
  • Experian
  • TransUnion

Take Action

Review each of your credit reports carefully. Each bureau maintains its own records, so what shows on one credit report may not show on another. Mark any negative or incorrect items on the reports so that you can correct any errors or work out arrangements to correct the negative items.

Always Pay Bills by Due Date

According to FICO, one of the primary items that goes into calculating your credit score is that you always pay your bills on time. Do whatever it takes to make sure that your creditor receives the bill payment on or before its due date. Even if this has not been your behavior in the past, start today. From this point on, make sure that all of your bills are paid and that all of your bills are paid by the date each one is due.

Responsible Credit Card User

Having and using credit cards is not bad. Using your credit cards responsibly is the most important thing. One of the best ways to build and maintain good credit is to use your credit cards, but to maintain them at a balance that you can afford to pay off in full each month.

Long Relationships Count

One major misconception that consumers have that is having too many open credit accounts and loans can drag down their credit score. This is not necessarily true. If you do choose to start closing accounts, close newer established accounts before you close old accounts. The length of your relationship with a creditor does benefit your credit score. This means that if you close a credit account that it is in good standing and has been for the last 10 years, it can cause your credit score to drop.

Avoid Maxing Out Your Credit

Just because you have a credit line of $30,000 does mean that you should run out and use it. Make sure that you are spending within your means and that you are spending responsibly. If you have a $30,000 credit line, but your purchase amount is only $10,000 then stick the amount that you need. It’s the financially responsible thing to do and keeps you from getting into financial trouble.

Patience is a Virtue

If you do have some work to do on your credit before applying for a home loan, it is not an overnight process. Depending on how much work you have to do, it could take weeks, months or even years to get your credit where it needs to be to get approved for a home loan.

Getting a mortgage these days is not as easy a feat as it once was. This means that you have to make yourself look as creditworthy as possible. Taking one, a combination of or all seven on these steps puts you on the path to making yourself look creditworthy.

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