Credit

The topic of the day is credit. Credit is one of the most widely misunderstood components of home buying. In order to purchase a home you must make sure your credit is the best it can be. Having good credit can save you money when it comes to your mortgage. Your credit score affects your interest rate, mortgage insurance rate, and your home purchasing power. The best way to make sure you have good credit is to pay your bills on time, and never default on any loans. Below are ways you can improve your credit.

Now is a great time to buy! Interest rates are at historic lows and home prices stable. It's a buyer's market which means sellers are more negotiable than ever and home prices are reasonable.


8 Ways to Improve Your Credit

Credit scores, along with your overall income and debt, are a big factor in determining if you’ll qualify for a loan and what loan terms you’ll be able to qualify for.

1. Check for and correct errors in your credit report. Mistakes happen, and you could be paying for someone else’s poor financial management.

2. Pay down credit card bills. If possible, pay off the entire balance every month. However, transferring credit card debt from one card to another could lower your score.

3. Don’t charge your credit cards to the maximum limit. Try to have a balance of no more than 10% of the available credit at one time.

4. Wait 12 months after credit difficulties to apply for a mortgage. You’re penalized less for problems after a year.

5. Don’t purchase big-ticket items for your new home on credit cards until after the loan is approved. The amounts will add to your debt.

6. Don’t open new credit card accounts before applying for a mortgage. Having too much available credit can lower your score.

7. Shop for mortgage rates all at once. Too many credit applications can lower your score, but multiple inquiries from the same type of lender are counted as one inquiry if submitted over a short period of time.

8. Avoid finance companies. Even if you pay the loan on time, the interest is high and it will probably be considered a sign of poor credit management.

This information is copyrighted by the Fannie Mae Foundation and is used with permission of the Fannie Mae Foundation. To obtain a complete copy of the publication, “Knowing and Understanding Your Credit,” visit http://www.homebuyingguide.org.