Ways to Manage Credit Prior to Purchasing a Home

Jul 24, 2015

Buying a home is a process that takes time, energy, patience and finesse on the part of everyone working together to make it happen.  Lenders do not appreciate surprises from mortgage applicants, and, let’s be frank, when preparing to mortgage or refinance a home, neither do you.

Nevertheless, too many people neglect taking the time to check their credit report prior to beginning their search for a home.  Or, if they do pull their report, they procrastinate addressing it as they feel uncertain as to how to handle their low score and tarnished report.

If there are any problems on your credit report, you will want to know about them and fix them prior to applying for a mortgage, and prepare to explain those legitimate credit factors to the lender.  The following are some tips to better help you handle your credit as well as your credit report when you are ready to buy a home.

• Do not lie or try to hide the truth — Many people may want to hide a less than perfect credit score.  You cannot take this approach with your lender, as hiding poor credit from mortgage bankers is next to impossible.  Even if you temporarily succeed, the truth will come out and they will be hesitant to lend you any money once they find the out about your past credit problems.  Be honest and upfront from the beginning, and be willing to explain the financial issues that could hinder the underwriting process.

• Do not mess around with your credit — Always pay your bills on time and refrain from taking out additional loans.  Keep credit card balances at under 30 percent of your credit limit, and do not apply for or open any additional credit lines either.  This could give your lender the impression you want to add more debt in addition to the mortgage you are applying for.

• Dispute any errors — Order a copy of your personalized credit report for free and carefully review it.  Ensure any items that are negative are indeed yours.  You can order these reports online or through the mail.

• If necessary, wait before buying your home — Negative items on your report influence your score less as time goes by with no additional problems.  As long as you avoid new negative issues, such as more late payments, your credit score will start increasing again.  Though collections remain on your credit report seven years after the initial date, they weigh much more heavily on your score after six months than they will when five years pass by.  You are more likely to get a better loan the further back the incident on your credit report occurred.  Should your score be affected by numerous negatives from many years back, explain what happened and what you did to fix the problem.  Should the problems be too recent, you should probably wait before applying for a mortgage to buy a home.  For more helpful ways to manage your credit prior to purchasing a home, please continue reading here.