Home Buying Wisdom - Avoiding The Bad Credit Blues By Brandon Cornett At Isnare.com Ezine Articles

Applying for a mortgage loan only to find out you have bad credit is a surefire recipe for the home buying blues. After all, bad credit will reduce the chance of getting a good interest rate, or maybe even prevent you from getting a loan altogether. What could be worse than that?

But it doesn't have to be this way. You can avoid the home buying blues by knowing your credit situation, and (if necessary) working to improve your credit score ... before trying to buy a home.

The thing to realize is that credit score improvements take time. It doesn't happen overnight, not by any means. So as soon as possible, you should (A) find out what your credit score is, and (B) work on improving it if necessary.

Here are the steps needed to do just that:

1. Request your credit report.
2. Check your credit report for errors.
3. Request your credit score.
4. Find out where you stand.
5. Work to improve your credit score, if necessary.

Now that we have a basic blueprint for success, let's examine each item in more detail.

1. Request your credit report.

The first step in this process it to get copies of your credit report. I say "copies," plural, because you'll want to request a copy of your credit report from Experian, Equifax and TransUnion, the three companies that maintain credit reports. You can request all three credit reports at once by visiting www.AnnualCreditReport.com. This website is maintained by all three credit-reporting agencies.

2. Check your credit report for errors.

That last thing you want is an error in your credit report that actually lowers your credit score. So review your credit reports closely for errors. Check the name and other admin info. Also be on the lookout for any loans or other lines of credit that aren't yours, as this could be a sign of credit fraud. If you find an error, go to the website of the company with the erroneous report and submit a request to have it corrected.

3. Request your credit score.

When you order your credit reports (previous step), they won't come with a score. You have to request that separately, and the best place to do that is through www.MyFICO.com. This website also has a lot of helpful information about credit scores, credit reports and related topics.

4. Find out where you stand.

Now that you have your credit score, you can determine where you fall on the credit scale -- great, good, average, below average, or bad. Credit scores range from 300 - 850, with 850 being the best and 300 being the worst. If your score is between 800 and 850, count your lucky stars!

The average credit score in the U.S. is around 723. So anything higher than that, and you're also in good shape. Lower than 720, and you may want to work on improving your credit score. You won't necessarily have trouble obtaining a loan with a score of 650 - 720, but you won't get the best rate either. If your score is at or below 600, you have some work to do! That's our next item.

5. Work to improve your credit score.

The better your credit score, the better your chances of getting a good interest rate on your mortgage loan. With a lower score, you will have to pay more interest, which translates to a larger monthly payment each month. Nobody wants that!

So if you've determined that you're on the "south" end of the credit score, you'll want to work on improving your credit. Here are some tips to help you do that:

* Pay down your bills. By paying down credit card balances and other signs of debt, you are improving your debt-to-income ratio. Mortgage lenders prefer your total debt to be no more than 20% of your net monthly income. If your overall debt is more than 20% of your income, try to pay it down as quickly as possible.

* Pay all your bills on time. Paying bills on time will raise your credit score. But the opposite is also true -- a history of late payments will hurt your score.

* Pay minimum balances, at least. When you get a credit card bill, always pay at least the minimum amount that's due. Pay more than the minimum, if you can afford to. This will reduce your balance quicker and give you a more favorable debt-to-income ratio.

* Don't apply for too many loans. When you apply for credit too often, you send the signal that you can't manage your finances properly.

Taking charge of your credit will make for a more enjoyable home buying experience. When you have good credit, you can qualify for a mortgage loan more easily, and you'll likely have a better interest rate as well. But the opposite is also true -- bad credit makes the whole process more difficult, and often results in the home buying blues.

So check your credit score, find out where you stand, and proceed accordingly to improve your credit score. Don't delay ... start today!

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