Cleaning Up Your Credit Before Buying a Home
If buying a home is somewhere in your future, your credit deserves some attention.
And here’s the good news:
You don’t have to have perfect credit to buy a home.
But your credit can affect your mortgage options and the cost of borrowing.
That’s why it’s worth working on before you’re standing in front of a house you love.
Start Early
The worst time to start thinking about your credit is when you’re already under contract.
If you’re planning to buy six months, a year, or even two years from now, you have time to make thoughtful changes.
Start by finding out exactly where you stand.
Review your credit reports.
Look for:
- Accounts you don’t recognize
- Incorrect balances
- Incorrect payment history
- Accounts that should no longer appear
- Duplicate accounts
- Errors in personal information
If you find an error, investigate the proper dispute process rather than simply assuming it will fix itself.
Pay Your Bills on Time
Your payment history matters.
Set up reminders or automatic payments if that helps you avoid missed payments.
Even one forgotten payment can create problems.
If you’re struggling to keep up with payments, address the problem early rather than ignoring it.
Pay Attention to Credit Card Balances
Your credit card balances can affect your credit profile.
If you’re carrying high balances, paying them down may help.
But don’t assume you need to pay everything off immediately without considering your entire financial situation.
You still need cash reserves.
Remember:
Buying a home requires both credit and cash.
Be Careful About Opening New Accounts
If you’re planning to apply for a mortgage soon, think carefully before opening new credit accounts.
That includes:
- New credit cards
- Store financing
- Personal loans
- Auto loans
Talk to your lender before making major financial changes when you’re getting close to mortgage approval.
Be Careful About Closing Accounts, Too
You may hear advice online that says:
“Close all your old credit cards.”
That’s not necessarily the right move.
Closing accounts can affect your credit profile.
Before making significant changes, consider talking with a qualified credit professional or lender who can look at your specific situation.
Don’t Move Money Around Without Understanding Why
As you get closer to buying, your lender will want documentation showing where your funds came from and how they moved.
Large deposits, transfers, gifts, or unusual financial activity may require explanation.
That doesn’t mean you can’t move your money.
It means you should understand what your lender will need to document.
Ask before you move money.
Don’t Take Online Credit Advice as Gospel
There is a lot of credit advice online.
Some of it is useful.
Some of it is outdated.
Some of it is flat-out wrong.
Your situation is unique.
If you’re planning to buy a home, your lender can help you understand which financial moves could help or hurt your mortgage application.
If Your Credit Isn’t Great
Don’t automatically assume:
“I can’t buy a house.”
You may have options.
The first step is understanding why your credit looks the way it does and what needs to improve.
Depending on your circumstances, you may benefit from working with a qualified lender, housing counselor, or reputable credit professional.
Give yourself time.
Credit improvement usually isn’t an overnight project.
What NOT to Do Before Buying
This deserves its own list.
As you get closer to applying for a mortgage, don’t make major financial decisions without understanding the consequences.
Be especially careful about:
- Financing a new car
- Opening several credit cards
- Making large purchases
- Co-signing for someone else
- Moving large amounts of money without documentation
- Closing credit accounts
- Changing jobs without discussing the situation with your lender
- Taking on new debt
Your lender should be your first call when you’re unsure.
Start Where You Are
You don’t need perfect credit today.
You need a plan.
Find out where you stand.
Fix what is inaccurate.
Pay your bills consistently.
Reduce debt where you reasonably can.
Save money.
And give yourself time.
The earlier you start, the more opportunity you have to improve your financial position before you’re ready to buy.
Have a Question?
Buying a home comes with a lot of questions. You don’t have to figure everything out on your own.
Have a question about something you read here? Want to talk through your situation? Or just not sure what your next step should be?
I’m happy to help.
Schedule a Time to Talk With Karyn
No pressure. No obligation. Just straight answers.
Prefer to just send me a question?