When it comes time to purchase a house one of the things that mortgage companies are going to do is evaluate your credit report and credit score. Just having a score high enough to qualify should not be the goal so here are 7 easy steps that you can take to ensure you have no unwanted surprises. The sooner you can start on these the better!
1. Get a copy of your credit report. The best place to do this is www.annualcreditreport.com. This is a website that is set up where every consumer can obtain all three of their credit reports every 12 months for free from the 3 largest credit bureaus. This site will not give you a FICO score so I suggest that you pass on buying the score they offer to sell you as it is not the score a mortgage company will be using when the time comes.
2. Review the report. This should go without saying but just to be clear I will say it! Taking the time to order a report but then not looking it over will not do you any good! Make sure the information is accurate, some studies suggest as much as 80 to 90% of reports have errors on them, don’t assume it is accurate!
3. If you find inaccurate items dispute them or ask for help. If it is on the report, it is consider accurate in the eyes of the FICO score until it is removed or fixed. Be careful as the bureaus have lots of tricky was to try to get rid of you. This might be a step that you need some help with as it can become very frustrating and turn into a full time job!
4. Check your revolving accounts (credit cards). See how many open and active accounts you have. The best mix is 3 to 5. Depending on how long you have until you want to buy your house it could make sense to open a new credit, but I do not recommend going out and getting 3 at once if you have a short time-frame. Just get one, if you have more than 5, do not close any of them!
5. Compute your Aggregate Revolving Utilization. What? I know that is mouthful, simply put how much do you owe on your credit cards compared to the limit. For example if I have $1,000 limit and I owe $500 my utilization is 50%. With this, the lower the better, ideally you want to be less than 10%.
6. Avoid apply for new credit. Inquires will never be positive for your score and usually are negative. Don’t apply for anything unless you are doing it for strategic purposes. Buying the house is more important that getting a new credit card to safe 15% at your favorite department store!
7. Be careful where you get advice. Understand all kinds of people or companies are quick to give credit advice, just be careful where you get that advice. With your credit score a little bit of wrong advice or incomplete advice might just cost you your dream house. Make sure you are getting advice from someone that is an expert when it comes to credit scores, not just someone that you think “should” know!
