Sunday, December 2, 2018 / by Trish Ford
A better credit score will open up a lot of doors for you as a homebuyer where financing opportunities are concerned. A good score will give you a better interest rate, possibly lower payments, and more lenders that are willing to give you a mortgage. Therefore, repairing your credit before you apply for a home loan is ideal, but even this is something you have to be careful with. Take a look at a few do's and don'ts to repair your credit score before buying a home.
Do: Check your credit report for errors.
The Federal Trade Commision once stated after a study:
"...21 percent of a representative group of American consumers discovered a "confirmed material error" in at least one of the credit reports issued by the Big Three credit reporting bureaus."
This means that roughly one out of five people could have some error on their report that is lowering their score and they don't even know it. Get a free credit report and go through it with a fine-toothed comb to find those errors and dispute them.
Don't: Take on major debts to have more accounts.
The more accounts you have in good standing on your credit report, the better your information can look in the eyes of a lender. However, this doesn't mean you should go all willy-nilly and open up new accounts with new debt just to beef up your credit history. Newly opened accounts with large debts can actually lower your score, not elevate it.
Do: Pay off small credit card loans.
The average consumer in America has two or three credit cards, according to Credit Karma (which, by the way, is an excellent place to get your free credit report). If you have more than two or three credit cards, try eliminating a few of them before applying for a mortgage by paying off the balance. Even if those balances are relatively small, this action may be enough to raise your score by a few points, which can fetch you a better interest rate on a loan.
Don't: Assume a few points won't matter.
Remember this fact provided by HSH.com: a FICO score of 679 can cost as much as a full point more than the same loan with if you have a 680 score, and that can be a thousands-of-dollars difference. If there's a way to raise your credit score by a few points, do it—it will be well worth it in the end.