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How To Improve Your Credit So You Can Buy A Home

Updated on January 16, 2011

There are a lot of great financial reasons that motivate people to want to buy their own homes. It is a huge financial move to make, though, so it’s important that you take your time with the purchase and do it right. One of the smartest things that you can do for yourself before buying a home is to improve your credit score. It can take some time and effort to make this happen but it’s well worth it for the long-term financial benefits that it will offer you so that you can enjoy your new home for many years to come.

Reasons to improve your credit score before getting a home loan

You want to improve your credit before you get a home loan for several key reasons. Those reasons include:

o   Better credit means better home loan terms. The biggest reason to improve your credit before applying for a home loan is because this will allow you to get the best rates for your loan. The better your credit score, the more favorable your rates will be. This means that you will have lower monthly payments. You will also pay less in interest on the loan over the lifetime of the loan. This can save you a lot of money in the long run, making it well worth the effort required to improve your credit score so that you can buy a home.

o   Reducing your debt will allow you to more easily make payments on your home loan. One of the things that you might do to improve your credit score is to pay off some of your other debt. This frees up your income so that you have more money to put towards your home loan. This helps to make the loan repayment more manageable. It may also mean that you can accept a shorter term home loan with larger monthly payments. This allows you to pay the loan back more quickly.

o   You’ll get a good sense of whether or not you can really afford a home. Taking the time to work on your credit score before you apply for a home loan will provide you with valuable information about your spending and your debt. This information may let you know that you actually can’t afford a home right now. Although this would be sad to find out, it is a lot better to learn it before you get a home loan than after. If you take out a home loan that you can’t afford then you’ll be dealing with payment issues and possibly even home foreclosure in the future.

How to improve your credit score to get a better home loan

The first thing that you need to do if you want to improve your credit score is to get a copy of your credit report. You need to know exactly what your credit situation is before you can begin properly addressing it. Once you’ve done that, there are many different things that you might do to improve your credit score. Some of those things include:

o   Dispute any errors on your credit report. One of the easiest things to do to improve your credit score is to clear up any errors that exist on your credit report. If your credit report says that you still owe on a loan that you’ve already paid off or that you made some late payments when you didn’t then you need to dispute those errors. It can take a few months and a lot of paperwork to get these errors straightened out but it’s a great way to boost your credit score.

o   Begin making on-time payments immediately on all of your accounts. If you have late payments on any of your accounts then your credit score is going to go down as a result. You need to start making on-time payments immediately so that you can build up a solid history of on-time payments to improve your credit score before you apply for a home loan. You should have 3-6 months of on-time payments on your report before you apply for that loan. Also, you should take this opportunity to consider why you are struggling with making on-time payments. If you really don’t have the money to make those payments on time right now then you may need to get your finances in order before it’s financially smart for you to apply for a home loan.

o   Reduce your debt and increase your income. One of the things that a mortgage lender will look at when determining whether or not to offer you a home loan is what your debt to income ratio is. You want to have a small amount of debt in comparison with your income. There are obviously two ways to make that happen. One is to reduce your debt. The other is to increase your income. Ideally you will tackle both of these options at once in order to rapidly improve your debt to income ratio. This step is important because not only will it give you a better credit score but it will also put you in a much better position to make payments on your home loan once you do get it. One key thing to remember with income is that it needs to be legitimate income that gets reported to the credit bureaus (not just side jobs that you pick up around your neighborhood).

How long will this process take?

Many people wonder how long it is going to take for them to improve their credit in order to get a good home loan. The answer varies depending upon your current situation. If you have a lot of debt and a long history of late payments then it will take longer for you than for someone who has very few credit problems and just wants to get the best rates possible. Typically you should assume that there will be a 3-6 month waiting period between the time when you start addressing your credit report issues and the results are reflected in a better credit report. Although waiting can be tough, keep in mind that you’ll be in a better financial situation as a homeowner if you go through the process. 


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  • amybradley77 profile image

    amybradley77 7 years ago

    Your home buying info. is very useful. Thanks again! A.B.

  • Hello, hello, profile image

    Hello, hello, 7 years ago from London, UK

    Thank is a wonderful help to get back on the rail again.