The Associated Press
Credit problems are often an obstacle to buying a first home. You can take steps to improve your credit score and increase your chances of getting approved for a mortgage on better terms. As a starting point it's critical to look at your credit report well in advance and take steps to fix any problems. Here are five tips:
1. Obtain a free credit report
If you don't qualify for a loan, it's likely because your credit score is too low. Your credit score is calculated by credit reporting agencies — Equifax, Experian and TransUnion. You are entitled to look at these reports once a year for free. You can request a free report by visiting Annualcreditreport.com.
Check the reports for accuracy. If you need to correct anything, guidelines are offered by the Federal Trade Commission.
2. Know your credit score and what it means
Once you obtain your credit report, you'll be asked if you want to buy your credit score. The charge is $7.95 for the scores provided by Equifax and Experian.TransUnion offers a score for $9.95 along with your free annual report. You may run into some confusion about VantageScore and FICO credit scores because they're on different scales. Either score will give you some idea where you stand, though. Talk it over with your banker.
Your credit score determines whether you'll qualify for a loan and at what interest rate.
Your credit score is based on several factors, including whether you've made payments on time; the amounts you owe; the length of your credit history; the number of new accounts and credit inquiries; and the types of credit you use.
A FICO score above 700 generally will get you a lower interest rate. A score below 600 could mean you'll pay 2% or 3% more, which could cost you thousands of dollars a year more. See the differences in house payments correlated to credit scores here.