Fix your credit, then buy your house

The worst time to find out that you can’t afford to buy something is after you have agreed to buy it. And yet, thousands of Americans do that every year when they decide to buy a house. They go shopping, look at five or ten or fifty houses, find the one they can’t live without and then decide it’s time to look into financing.

This system works great if you have the world’s most patient seller, but you probably won’t. And what happens if you are turned down for the loan due to bad credit? You will probably miss out on your dream house because you will not be able to fix your credit soon enough to suit the seller, who will almost certainly turn around and sell the property to someone else.

It may be possible to fix your credit in time and you may still be able to buy your dream house.

The trick to repairing your credit is to do it before you buy, but if you cannot do that, here are some tips that may help you:

• Check your credit report. You can get a copy of your credit report for free from a Website set up by the three major credit bureaus, but the free report will not include your all-important credit score, which is the figure that lenders use when determining if a borrower is worthy of the loan. That’s not a problem, though. If you have recently been turned down for a loan, you can get a copy of your report, with the credit score, for free from the credit bureaus - Equifax, Trans Union and Experian. Get a copy and look it over.
• Look over your credit report and find out where the problems are. They’ll be plainly marked. Have you failed to pay a couple of outstanding debts? Pay them. Are your credit limits reported incorrectly? A $500 balance on an $800 limit is a problem; a $500 balance on a $25,000 limit isn’t. Make sure the limits are correct if the report indicates that you may be too close to your limits. Reducing your balances to less than 30% of your limits will increase your score fairly quickly.
• Do not close any accounts. This could affect your score in a negative way.
• Once you have done this, ask your lender to look into rapid rescoring. The regular process of clearing up credit score problems can take months, but rapid rescoring, which costs an additional fee, can clear up the problem in just a few days. This is worth pursuing if you are trying to close quickly on a loan.

These are some things you can do if you have a problem. The best solution, of course, is to avoid the credit problem in the first place, especially if you are shopping for a house. The best solution is to get prequalified for a loan. Before you start home shopping, talk to a lender. Discuss what sort of house you would like to buy, your income, your debts, and begin the process of applying for the loan first. Your lender is certainly interested in seeing you get the loan, and he or she will check your report and tell you if you will qualify for the loan. If not, he or she can tell you what you must do in order to qualify.

If you do this ahead of time, you won’t have to risk the heartache of losing the house of your dreams due to a financial problem you didn’t even know you had.