Review and Repair Credit

The higher your credit score, the lower the interest rates that lenders will charge you. Even the difference of a rate point or two can add a hundred dollars or more to your monthly payments. Your credit scores summarize your credit history - how reliable you are at paying off debt and keeping up with monthly obligations, such as rent - into a single number. First, review your credit scores. Transunion, Experian, and Equifax are the three largest credit reporting agencies. Get your free reports directly from them. You are entitled by law to a free credit report each year. Generally, scores over 800 are considered exemplary, and scores over 760 are considered solid. The lower your credit score, the higher the rate you will pay. As well, the lender might require a higher down payment or other restrictions. If your down payment is 20% or less, your lender might require private mortgage insurance (PMI). This insurance covers the lender's risk if you do not pay your mortgage. PMI is not homeowners' insurance. You will pay the premiums for PMI until your equity eclipses the risk. Find out exactly what PMI you will be required to carry and calculate when you reach the trigger to drop it. Some people continue paying the same amount, directing the extra formerly claimed by the PMI premium to build equity early. If you want to boost your scores to get the best possible mortgage rates, ask for detailed credit reports. Scour the reports to see if there are any mistakes that might have dragged down your score. For example, perhaps a department store posted your credit card payment incorrectly, dinging your credit score. It will take watertight documentation, persistence, patience and about six months to correct errors in your credit report - and to see those corrections flow through to an improved score. How much you owe is just as important as how reliably you repay what you owe. A year before you hope to buy a house, start trimming back your credit spending. If you carry balances on your accounts, keep them below 30% of the maximum you are allowed to borrow. Whittling down the amount improves your score because you owe less and because you are paying it off faster. Your lender will check your credit score and outstanding debt levels again right before closing. If your debt level has gone up, that will affect the rate you pay or the lender's commitment to the loan.
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