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Credit Building Strategies

Credit Strategies for Purchasing a Home

If you plan to purchase a home, make sure your credit file is in as good shape as possible. The FHA requires all three of your credit reports to be reviewed to determine your credit risk before it will approve a mortgage. The best strategy to increase your credit rating is to clean up your credit file, get all your accounts current, and pay down your debt prior to applying for a home loan.

To qualify for a home loan:

  1. You typically must have a combined credit score (the average of the three credit bureau scores) of 620 or higher.
  2. You cannot have outstanding delinquent debt on your credit file (unless it is more than five years old and less than $5,000).
  3. Charge-offs cannot be less than 3 years old.
  4. Judgments must be paid off.
  5. You cannot have too much open credit.
  6. You cannot have too much new credit in the last year.
  7. You should ideally have three types of credit: mortgage, credit card, and car loan. If you are a first-time homebuyer and do not have a mortgage loan history, the types of accounts in your credit file should be: a credit card (secured cards are acceptable but considered a higher risk), an auto loan or car lease (via a bank, not a financing company), and a retail store card (such as Sam's Club or Costco).
  8. If you own your own business, your tax returns must report a profit for the previous two years.
  9. There must be no record of late payments for any of your accounts for the last 6 months.

Urban Legend? I have been told (though I haven't independently verified it) that if you initiate a dispute with the bureaus and pull your credit file sometime during the investigation, the disputed information will not be factored into your overall score. If someone wants to try this and let us know if it works, I will post the results on the DebtClear.com blog.

> In Conclusion