Buying a house is a dream come true for most of us. It is a practical and a financially wise decision as well. No wonder the real estate market is ever buzzing with activity this year. However, as much as we love the idea of buying a house, the high amount of money involved can make some of us weary about the process. The most basic step in buying a house is planning your budget. Based on income and savings, one can get an estimate of the price of house they can afford. A majority of home buyers look for financial assistance from banks or other lending institutions to purchase their house. In such cases, along with Income and savings, credit scores also play a huge role in deciding whether a loan can be extended to an individual, as well as the amount of loan. Real estate agents can also help you decide the budget and find a property that fits within it. Agents are also great resources to help find a lender who can clean up your credit score.
Check your Scores/Clean up your Credit Score
Credit scores are a way to measure the “credit-worthiness” of any individual i.e. whether the person will be able to pay back the loan on time. Your scores are based on your credit history, the number of credit lines and loans held by the individual, weather payments for those have been made on time, the amount of outstanding balance one is carrying on other loans and credit cards etc. So the first thing to know before you decide on a home is whether or not you have a good credit score or if you need to clean up your credit score. If you have been paying all your outstanding bills and installments on time, then you most likely should. It’s still always good idea to check, never assume.
Identify your weak spots
There are three main credit Bureaus in the US – Experian, Equifax and Trans-Union to review when you go to clean up your credit score. While they have some differences in the parameters on which they base their scores, the scores from all three bureaus are typically pretty close. You can get your credit report from one or all of the bureaus by paying a small fee. Review your report well, especially the section that talks about adverse accounts. This section lists down the accounts where you may have missed payments, defaulted etc. If there is a specific credit card where you have missed a payment more often than others, make a note of it. Similarly, check your average outstanding balance against your credit limit. If the ratio is too high, make a note. Also, check if any of the entries don’t add up since sometimes, even the Bureau can get their information wrong.
Correct some mistakes, undo others/Clean up your Credit Score
For the accounts identified where you have been missing timely payments, it is time to buckle up and make sure you begin paying your bills on time, which, will help clean up your credit score. As you get regular with your payments, your score will start improving over a period of few months. In case you have had one or two late payments, you can also call the company that has registered the late payment and request them to remove it from your credit record. Most companies willingly do this for those who missed the payment deadline once or at max, twice. Similarly, if you have too many open credit lines with small outstanding balances and can spare some money, then take the extra effort to pay all dues and close these credit lines.
Request a credit limit increase
If on some credit lines you have been regular with your payments but your ratio of outstanding balance to the credit limit is high, then a simple way to make this ratio look better is to request that your bank or financial institution increase your credit limit. However, remember that a credit limit increase only be accepted if you have displayed good payment behavior. Also, make sure to not exhaust the increased limit because remember, this limit extension is to reduce your ratio and increasing expenses will defeat the purpose. Both of these issues are crucial if you are looking to clean up your credit score.
Raise Disputes, if any
Lastly in your effort to clean up your credit score, if you have identified any entries that appear incorrect in your report, send a dispute letter to the bureau and provide them all information and documents to prove your case. This could take some time, but correcting records can help boost your score.
Improving scores can take some time and hence it is advisable to begin early. Even if you are not planning to buy a house right away, it is good to begin patiently working on your scores so that by the time you are ready, your scores are ready too.