Credit is the foremost factor when deciding what type of loan you can get, or if you can get one at all. The plain fact is, is that if your credit is not good enough; you will unable to purchase a home.
Here are a few things you can do to right now quickly raise your credit score.
#1 Check Your Credit. If you do not know what your scores are, you have no idea where you stand. You may have errors that are affecting your credit score that you do not know about. A free resource to do this is annualcreditreport.com They will give you a 30 day free report once every 12 months showing all three of the Credit Bureaus information about your credit files (Experian, Equifax and Transunion). Check all information that has to do with your creditors information. If you see any inaccuracies, dispute them.
The reports you will see through annualcreditreport.com will not show your scores, but for free, it is a good start to see what you are working with. You will need a service that shows your credit scores.
MyFico will show you all three of your credit scores
Here is how to figure out which score a lender is going to look at. Lenders do not average your three scores. If your scores are 489, 510 and 562, a lender will look at the middle number from highest to lowest, which is 510. For a first time home buyer, this credit score can be approved with our programs.
#2 Dispute Inaccuracies. When you find inaccurate information, dispute it right away. All three credit bureaus will allow you to dispute items right online with the purchase of your credit report. The credit bureaus have to check your information and make sure that it is correct or inaccurate. It takes a while for the file to update (approximately 30 days), but when items drop off; your credit score will improve.
#3 Attain New Credit. If you have any credit cards that are at their max, it may be helpful to apply for another credit card. Make sure that you have the means and discipline necessary to be responsible with new credit. The wisest suggestion is to transfer some of the debt from other credit cards and distribute your debt evenly amongst all of your credit cards. Another credit card will not hurt your credit. If you lower your balance on all of your credit cards, ideally in the 30% range of your high limit, by adding another card and transferring debt, it will improve your score.
#4 Pay off Debt. This may not be the right time to pay off your debt. Sometimes, paying off debt can actually lower your credit score. MyFico has a good credit simulator that shows you how the choices you make affect your scores. If you are looking for a home it may even be best to leave it alone or deal with credit issues later when you are securely in your home. If you are struggling to come up with a down payment, it may be time to wait a little longer, or use down payment assistance such as AmeriDream or the Nehemiah Program.
If you have any collections, medical bills, small credit cards, or smaller items that have gone to a collection agency, it may be wise to call the collection agency and negotiate a settlement. If you explain that you want to do the right thing and pay off your old debts, try to get them to cut your payoff in half. Make sure you get an agreement in writing before you give them your money, and make sure that agreement says that the lowered payoff will zero out your balance, and that they will remove the item from your credit report. (check your credit report to see if this has been done after you have paid. If it still shows up, dispute the item off your report)
Remember!!! Items drop off of your credit report after 7 years, if your creditor does not renew them. If you have old items that have not been updated near the 7 year mark, LEAVE THEM ALONE. They are most likely to drop off your report and your score will increase shortly thereafter.
#5 Pay Your Bills. The best and most common sense way to have great credit is to pay your bills on time. This is sometimes easier said than done especially after the holidays or after big life events such as a wedding or misfortunes like divorce or job loss. But keep in mind, if you merely by pay your bills on time for 2 years will have good credit.