Having the Credit You Need to Qualify for a Home Loan

You've finally decided to take the plunge and purchase a house. You've visited your bank and applied for a home loan, hoping to put in an offer on the home of your dreams. But the news from the bank isn't good. Either the interest rates are beyond your means, or you were turned down.

The explanation for this situation is that there's a problem with your credit score. Your bank will make a decision regarding your eligibility for a loan and the interest rate it will charge you based on its assessment of your past performance.

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.

If you raise your score before visiting your lender, you will have a better shot at qualifying for a loan and getting a good interest rate. Start by getting a copy of each of your three credit reports.

Then check them carefully for any wrong information that will hinder your efforts to get a loan. If you find an error, contact the credit agency to try and fix it. If there are any negative issues that are correct, you need to address them by paying off your creditors, as quickly as you can.

Even regular, small payments will add up eventually. And it will demonstrate that you're committed to paying off your debt. When your creditors see that you're making an effort, they might pass along the information to the credit agencies. This will almost certainly improve your credit rating.

A somewhat shady practice used by some is to dispute a negative item that they know is actually correct. If the credit agency isn't able to substantiate within a set period of time that the item is, in fact, legitimate, they are obligated to remove the item from your record.

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.

It's important that you maintain all of your credit accounts and regular bills in good standing. The odd late or missed payment will appear on your credit report and impact your score negatively. You want to build up as much positive information as possible, so that your lenders will be impressed with your credit performance.

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.

Paul Cameron is editor of the Personal Finance Section of i-KnowHow | Information for Life at i-knowhowonline.com i-knowhowonline.com, where you'll also find ideas and tips for hobbies, home and garden, technology basics, family and much more.