After you get your report, thoroughly check for any errors or inaccuracies. Are the addresses, accounts, and balances accurate? Are there accounts you don’t recognize? If you find a mistake, contact the credit reporting company and file a dispute. You want to make sure your credit report is completely accurate before you start house shopping.
What Credit Score Do You Need?Once you know your credit score, this will help you understand how it will impact the type of mortgage you might be able to qualify for. Conventional loans typically require your credit score to be at least 620. If your credit score is less than that, then you will likely want to look into a Federal Housing Administration (FHA) loan. If you have a credit score of 580 or over and a 3.5 percent down payment, you may qualify for an FHA loan. Finally, if you have a score of 500 to 579, then you will need at least a 10 percent down payment for an FHA loan.
That said, the closer you are to an 850 FICO score, the better your chances of qualifying for a loan, and the better interest rate you are likely to get.
Steps to Improving Your ScoreAccording to FICO, the scoring system used by the majority of banks, the following are key to having the best possible credit score:
- Pay your bills on time. Your payment history is the most important factor for determining your score. If you have a tendency to be forgetful, consider setting up your bills on automatic payment.
- Keep your credit card balances low. This is the next most important factor in your credit score, so do what you can to keep your debt as low as possible and pay off what you can.
- Open credit only when you need it. The older the age of your open credit card accounts the better it is for your credit.