If you are struggling with credit problems, you must find some ways to improve it before you can apply for a mortgage loan. Final approval is very much dependant on your present credit standing, which is represented by the report generated by a consumer reporting agency or credit bureau and a numerical expression of creditworthiness known as credit rating.
A credit report is generated from your payment history and past financial behaviors. To generate such a report, a borrower’s credit history for the past seven years (recorded by the three National Credit Repositories) is taken into account. Your credit report serves as a base for the calculation of your credit score.
Know your Credit
Get aware of your present credit standing. Follow through these steps to know where you stand.
Order a credit report
Is your credit acceptable to a lender? To know the answer, you must know about the current situation of your credit standing. Each of the three credit reporting agencies offers a free report every year, which you must see prior to applying for a mortgage.
Review your report
You must ensure that your report doesn’t contain errors. If you find one, you must report it immediately to the concerned authority. Your credit score is based on the report, so you must get all the mistakes corrected well before you apply at a lender.
Know about your credit score
You have to pay a fee to know about your credit score. The most commonly used score is provided by FICO, which is a short form for Fair Isaac Corporation. A FICO score ranges from 300 to 850 and you should have a higher score to easily qualify for a loan.
Do it yourself
See if you can manage your financial matters on your own and put things in order. Follow these DIY steps of credit enhancement.
Use your credit responsibly
You should try to get rid of all existing debts. Pay off your debts and have them removed from your credit report. If you are using a credit card, you should not overuse the credit limit. It is generally a good idea not to use more than 20% of available limit.
Make payments on time
You must pay your bills and loans on time to have your credit in good condition. This is even more important after a mortgage preapproval. Make payments on time, stop applying for new credit and keep open any existing credit card account until you are finally approved.
Get Professional Help
When you are up with serious credit issues, you might need to obtain professional help. Approach genuine counselors only and stay away from a fraudulent company.
See if you fall in the bad credit zone
You are not likely to receive too many offers once your credit score gets lower than 580. This is because anything below this is generally viewed as bad credit, which is an indication of your irresponsible financial behavior in the past.
Seek Credit Counseling
You must seek credit counseling if you are struggling with less-than-perfect credit. These counselors may help you learn how you can improve credit and avoid having more debt than can be repaid.
Avoid Credit Repair Companies
You may be tempted to seek assistance from a credit repair company that claims to offer help in consumer credit and debt repayment difficulties for people with credit issues. You must know that you are dealing with a private, for-profit company.