Building your credit score before buying a home

Building credit score can help homebuyers qualify for a mortgage and avoid being denied a home loan due to an error on their credit report.

A credit score is a financial reputation to banks and lenders that is calculated from loans, debt reports, credit limits and payment history. Having a good rating is an important prerequisite for purchasing a home in California, as banks may determine how much money they are willing to lend or how much interest they may charge.

Credit report information

In order for people to improve their score, they first need to get a copy of their credit report. These contain personal information such as name and date of birth, any lines of credit or bank accounts that belong to the person, a record of how many times the report has been accessed, as well as information regarding any overdue debt or collections. Everyone is entitled to a free report once a year from an online credit bureau.

Credit scores range from 300-850; a good score typically starts at about 720 to 750. With a copy of their credit report, homebuyers can identify areas in need of improvement and recognize what issues may be bringing down their rating, such as bankruptcy.

Build up your score

There are ways to improve a credit rating. For example, paying bills on time and building an emergency fund are ways to manage finances and prevent excessive charges on credit cards. Other ways to improve scores include the following:

  • Pay more than the minimum payment on cards and loans
  • Get rid of credit cards or pay down the balances as much as possible
  • Pay off student loan debt
  • Look out for identity theft
  • Do not cancel paid-off credit cards
  • Work on improving spending habits

Credit scores can change over time as people spend and borrow money, pay bills and repay loans. Homebuyers should be aware of this, and make sure to check their score often in order to secure a loan when their report is at its best.

Possible credit report errors and problems

Thoroughly checking a credit report and identifying any inconsistencies or problems is important. According to Forbes magazine, these types of errors prevented 25 percent of mortgage applications from being accepted. If potential homeowners do find any false information, they must be proactive and file a claim with credit bureaus. Homebuyers may need help solving a bankruptcy dispute or discharging debt in order to improve their rating and make their report a better reflection of their financial history.

An improved credit score may help qualify people for the loan they need to buy a home, and it may help to save them money in the long run by avoiding a high interest home loan.

In order to prepare for buying a home, Northern California residents may want help polishing their credit. To learn more, they should consider seeking legal counsel or talking to an experienced attorney.