Poor credit and lack of credit are two common obstacles people face when trying to purchase a home. Your credit score directly impacts your ability to gain approval for a home loan, as well as interest rates on your loan. If you're worried that your past financial mistakes will affect your future goal of home ownership, it's important to address your issues immediately. You won't be able to fix or increase your credit rating overnight, but you should be able to improve or increase your credit in six months to help you qualify for a mortgage.
Check your credit report to get an accurate picture of your credit score and debt. Read over every entry carefully to ensure all of the information your report contains is accurate. Dispute any errors as soon as possible.
Catch up on past-due recurring bills and pay those bills on time and in full in the future. Avoid letting any bills fall behind for the next six months and don't make for partial payments. Six months of paying on time and in full could have a large, positive impact on your overall credit score, as your payment history makes up the largest percentage of your credit score calculation.
Put any extra cash you have toward repaying your debts, including credit cards, judgments, garnishments or loans. Call the creditors you owe and try to negotiate new payment options. You may be able to obtain lower monthly payments by doing so or reach a settlement that allows you to pay the debt off all at once for a lower amount. Your debt-to-credit limit ratio accounts for 30 percent of your overall credit score, so the less total debt and more unused credit you have in six months, the higher your credit score will be. However, judgments and similar collection accounts will not vanish once repaid and will remain as entries on your report for seven years.
Obtain multiple forms of credit. Ten percent of your score is based on the types of credit you have, so it pays off to have a diverse set of credit types. For example, having a credit card, an auto loan and student loans simultaneously will build credit faster than having only one of these options. However, avoid taking out too many lines of credit in a short period of time, as this can hurt your score more than help.
Keep old credit accounts open. Avoid closing accounts you've had open for long periods of time -- even if the current balance is at zero. The length on your accounts is the third largest factor that influences your credit score.
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