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Having the Credit You Need to Qualify for a Home Loan

May 4, 2008
Owning your own home has been a dream for several years. In order to get a loan for the home you want, your credit will be checked. If it is not up to par, your loan will be turned down or you will be offered a loan with an extremely high interest rate. Is your dream destined to remain a dream?

If you were turned down for a home loan this indicates that your credit score is poor. Or it may be fair but you will have to pay high interest rates to get the money you need for a home. This all depends on what is on your credit report and if the lender thinks you could pay the loan payments.

But don't give up hope. There's a chance you can improve your credit score if you work hard at it. Don't procrastinate; you need to get moving now if you want a good record before applying for that loan. It won't happen overnight.

A good credit score will increase your chances of qualifying for a home loan at a decent interest rate. Start by getting hold of all three credit reports so you know where you stand.

It is always a good idea to check them for items that you believe are not your debts. These can be disputed and if they are not yours, they will be removed. If you have debts that have not been paid on your report, try to arrange to pay them off. Even a payment plan is better than not paying them at all.

Your efforts to pay down your debts on a regular basis will demonstrate to your creditors that you're serious about repaying your debt. Once they notice your efforts, they'll be more likely to report regular payments to the credit bureaus, ensuring that your credit scores improve.

Even if you have debts that you owe on your reports, you can dispute these as well. If the information on your report cannot be verified within a certain amount of time, they must remove this information.

Even though this is perfectly legal, it's a risky path to take. If it's a genuine bad debt, it will come back to haunt you. The credit bureau might remove the item in the short term, but it's more than likely to show up again when they confirm its accuracy.

Take care you keep all of your bills and credit accounts current and in good standing. Late payments show up on your credit score and will lower your rating. You want lots of positive items on your report so potential lenders will look more favorably on your application.

If you've had a rough financial road, it will be difficult to straighten up your score quickly. But don't give up; you need to eliminate all the negative information on your report. You might even consider requesting that the credit agencies recheck your records; some people have success with this approach.

You might ultimately have to forget about erasing your past mistakes and focus on the important thing - getting more positive items to show up on your credit score. Then you'll be able to move on to applying for that loan to purchase your dream house.
About the Author
Paul Cameron is editor of the Personal Finance Section at i-KnowHow | Information for Life, where you'll also find ideas and tips for hobbies, home and garden, technology basics, family and much more.
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