Thinking About A House? Do This First

Posted by Richard on May 23, 2024

Spring has arrived and the real estate market is about to take off.

If you are considering your first home, you probably know you need a lender and money for a down payment, but you might not have ever considered your creditworthiness. Young people especially may not know their credit score, but when they want to buy a home, that changes.

These days, a credit score of 700 is usually considered a good starting point for a home loan. FHA loans are more lenient. But the most important thing is to start immediately to build your credit.

Here is a one-year plan for better credit that works for everyone — not just first-time home buyers:
1. Look at your credit report and find out your credit score. You can go to annualcreditreport.com and look over your free annual report from each of the three credit reporting agencies. Make sure to correct errors. Services like Credit Karma, for example, offer a credit score from at least one or two of the three reporting agencies.
2. Pay your bills on time. You must never be late even once. Automate payments.
3. Work on getting your credit balances below 50 percent of your maximum credit limit. That raises your score. If your balances are below 30 percent, it raises your score again. Pay off credit accounts.
4. If you don’t have a credit card, look into establishing a secured card. With a secured card, you send the card company a deposit and then they send you a credit card. Buy something, and then make your payments perfectly.
5. Don’t apply for a store account every time the clerk says you can save 10 percent.
6. If you have unused credit accounts, don’t close them. That can actually make your score drop.
7. During your credit improvement year, don’t finance a car. Lenders don’t want to see buyers committed to several large credit accounts.
8. Plan to open three new credit accounts during your credit improvement year, even if they are secured accounts. Be sure to space your new accounts by three months. Use each account and pay each off COMPLETELY every month. This is the kind of credit management that improves your credit score and teaches you how to manage credit.