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By Jessica Mohajer
Special to Financial Independence Hub
To purchase a home, having good credit is essential to be approved for mortgage financing.
If your credit needs some improvement, then there are steps you can take to fix it and make yourself more attractive to lenders when seeking approval for a real estate purchase.
What is the credit score, and why do you need it for real estate purchases?
Your credit score is a numerical value calculated using information from your credit report. It typically ranges from 300 to 850 and reflects how likely you are to repay debts based on factors like payment history, the total debt owed, length of credit history, and types of accounts used.
A good credit score can make it easier for you to get approved for a mortgage loan and secure favorable interest rates and terms. Conversely, a low credit score can result in higher borrowing costs and potentially even difficulty obtaining financing for a home. For this reason, it is vital to ensure that your credit score is in good shape before attempting to purchase real estate. It’s also a good idea to check your credit score regularly, as it can change based on any changes in your credit activity.
Enlist the Help of a Credit Repair Service
Enlisting the help of a credit repair service can be an effective way to improve your credit score for a real estate purchase. A reputable credit repair service can work with you to identify errors on your report, dispute information, and offer guidance on how best to handle any financial issues dragging down your score.
Look for a credit repair service that offers personalized services such as customized plans, detailed analysis of your credit report, and a team of certified professionals. It’s also important to check the credit repair service’s reputation: ensure they have good reviews from past clients and are licensed in your state.
Have a positive payment history
Your credit score is one of the key factors that lenders look at when evaluating your loan application, and a good payment history will help you get approved more quickly. Paying your bills on time every month is crucial because it shows that you are responsible for managing your finances. The longer and more consistently you can make your payments, the better. It’s also a good idea to keep track of late payments and rectify them as quickly as possible. If you have missed a payment or two in the past, work on building up your credit score by making timely payments in the future. This will show lenders that you are taking steps to repair your credit and are dedicated to staying on top of your finances.
Check for errors on your credit report
It is important to check for errors on your credit report before you start buying a home. Errors on your credit report can cause significant problems when trying to secure financing and result in delays or even denial of loan applications. While there are several ways to review your credit report, the most efficient method is to get a copy from each of the three major credit bureaus: Experian, Equifax, and TransUnion. By getting a copy from each bureau, you can compare results and make sure all information is accurate.
Once you have received your reports, take some time to review them carefully for accuracy. Not only should you look for errors in your personal information, such as address and name, but you should also look at the information related to your credit history. Check that all accounts listed on your report are yours, that all account balances are correct, and that there is no past due payments or other negative information inaccurately reported on your credit report.
Dispute any incorrect information
If you’ve found incorrect information on your credit report, you must dispute the error. It is possible to fix your credit for a real estate purchase, but this process involves taking immediate action and proactively correcting the problem. Errors on your credit report could lower your score, making you ineligible for a loan. When disputing an incorrect item on your credit report, it’s important to be thorough and provide all the evidence you have supporting your dispute. For example, if the error involves an account balance or payment history, gather relevant documents to help prove your claim.
Be sure to include a detailed description of the error in your dispute and clearly state why you believe the information is inaccurate. You can go about disputing an error with the credit bureau either online, by mail, or over the phone.
Pay off any outstanding debts
Paying off any outstanding debts is one of the essential steps in fixing your credit for a real estate purchase. Not only will this help to improve your credit score, but it will also show potential lenders that you are responsible and capable of budgeting effectively. When paying off debts, prioritize those with high-interest rates first such as payday loans and cash advances, as these can significantly impact your credit score. Depending on the amount of debt owed, it may be wise to seek out a loan consolidation program or work with a credit counselor to make a more manageable payment plan. Also, pay the minimum payments on all your other debts while trying to pay off the high-interest debt.
Make a plan to improve your credit score over time
When it comes to buying a home, having a good credit score is essential. The higher your credit score, the better your chances of getting approved for a mortgage loan and better terms. So if you are planning on purchasing real estate shortly, it’s essential to improve your credit score now.
The final thought
There is no one-time fix for bad credit when buying a home. It can be a complicated and lengthy process, but with patience and hard work, you can get your credit score in shape for a loan application. Taking steps such as disputing incorrect information, paying off outstanding debts, avoiding opening new accounts, and setting up a plan to improve your credit score over time can all help you get closer to achieving your dream of owning a home. With the right strategies, fixing your credit for a real estate purchase is possible. Be sure to consult with professionals such as lenders and credit counselors to ensure you’re on the right track.
Jessica Mohajer has been a full-time blogger for the last 7 years, writing on various topics in the financial and credit industry including credit repair, mortgages, refinancing and more. She is a frequent contribution to websites such as Credit-Repair-Companies.org and many other online publications.
