Raising your credit score
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Raising your credit score

Raising score to qualify for a mortgage loan ...

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The better your credit score and overall creditworthiness, the more likely it is you'll qualify to buy the house of your dreams. You can help yourself for the future by following these steps to make yourself look better.

Start now. Don't wait until you decide to start looking for a house. Bad marks on your credit report don't look so bad if they're in the past but your recent history is good.

Step 1
Get your credit report from one of the three credit history companies: Experian, Equifax or TransUnion. That's where you are now.

Step 2
Stop charging any new purchases. Use cash, check or debit card for everything you buy.

Step 3
Cut your expenses down to the minimum. Everybody can cut out some of the things they buy.

Step 4
Consider raising your income. Get a second job or start a small business in your home or sell everything in your attic on eBay.

Put in for a promotion at your day job.

Step 5
Make at least the minimum payments on all your current debts - on time.

Late payments look bad. 60-day late payments look worse than 30-day late payments. And 90-day late payments make you look really bad.

So if you're late on any bills now, catch up ASAP. And stay caught up and on time.

Also, pay your rent on time. This is not a debt, but a good record of paying rent on time may help you convince a loan officer that you would be just as reliable about paying your home mortgage.

Step 6
Pick one of your bills and pay it completely off. It could be the smallest one or the one charging you the highest rate.

Pay the minimum due on all other bills, but on that one bill, pay all the extra money you can every month until it's totally paid off.

Step 7
Do that with another bill, especially long term debt such as a student loan or your car note.

The less other outstanding debt you have when you apply for a mortgage, the better your chances of qualifying to buy the house of your dreams -- and save money on points and interest.

Step 8
As you pay off credit cards, close out all but the final two or three.

Lenders like you to be the sort of person who borrows some money, but not too much. Besides, they understand that today most Americans need credit cards.

But they don't like people who pay their credit card balances off in full every month -- because they don't make money off such people!

And they also don't like people carrying a lot of credit cards even if they have a $0 balance now. Because if those credit cards are still active, you could go out and borrow on them to the max the day after you close on your house. Lenders will be suspicious that you've paid the balance off just to look good, but you plan on going back to owing a lot of money once they approve your mortgage.

So the ideal situation is:

You keep a few credit cards. Use them for a few small purchases. Keep a small balance on each card, but not a big one. So have you some lines of credit in case of emergency, but not enough to make a mortgage lender suspicious or to get yourself in debt over your head. Make slightly more than the minimum payment each month. On time!

Step 9
Start saving money for your downpayment. The more cash you can come up with at closing, the better terms you'll qualify for and therefore the more money you'll save in the long run.

Lenders like to see that you have successfully saved money.

It's true that if you're a veteran, you can qualify for a VA home loan up to a certain limit with no downpayment.

It's also true that you may qualify for a FHA loan with only a 3% downpayment.

And it's also true that may qualify for a conventional loan for Freddie Mac or Fannie Mae with only a 3-5% downpayment.

Still, you're more likely to get the loan you want the higher your downpayment. And you'll save money on points and interest.

Step 10
Don't move until you close on your own house. Lenders like stability. If you've lived in 5 different apartment buildings in the past 6 years, they'll think you'll get itchy feet even after you own your house.

Don't change jobs unless you will make substantially more money. Again, lenders like stability. Of course, they also like you to have a lot of money so you can make your debt payments, so if you go to a higher paying job, that's worth it.

If you want to start a business, don't quit your day job until you take possession of your house. If you are self-employed, you'll have to show tax returns from the last few years to verify your income. If you can't do that ... you can almost always kiss that mortgage approval good bye.

So if you're an eBay Powerseller, keep on doing it, but only in your spare time. It won't impress a lender until you have the Schedule C tax forms to show you're netting more money on eBay than from your day job.

After you've done all the above (and I realize it could months or years), send off for your credit report again.

Your dream house awaits you - along with the secure feeling of knowing that you're in control of your finances. (don)
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