If you’ve been thinking about buying a home you’ve probably wondered about all the steps you will have to take to get there. The first and most important step is applying for a home loan (unless you’re one of the few whose parents are gifting homes to these days). For the rest of us- we will have to work to be considered worthy in the eyes of the bank to be lent an insane amount of money.

Most lenders can qualify people with credit scores as low as 580, but you will definitely have less than ideal loan terms and will need to have a solid debt to income ratio and probably a pretty good income.

Ideally, try to get your credit score above 740, and expect the best loan terms at 780 and above.

The best way to start making moves towards a better credit score is to speak with a loan officer about your specific situation. They will be able to see your whole financial picture and give you tailored advice to get you on the path towards home ownership.

But in the meantime, here’s a few general guidelines:

1. Check Your Credit Report: The first step in improving your credit score is knowing where you stand. Obtain a free copy of your credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) and review them for errors or inaccuracies. Dispute any discrepancies you find to ensure your report is accurate.
2. Pay Your Bills on Time: Consistently paying your bills on time is one of the most significant factors affecting your credit score. Set up payment reminders, automate payments, or create a budget to ensure you never miss a due date.
3. Reduce Credit Card Balances: High credit card balances relative to your credit limit can negatively impact your credit score. Aim to keep your credit utilization ratio below 30%. Paying down credit card debt can quickly boost your score.
4. Avoid Opening New Credit Accounts: Each time you apply for new credit, it can result in a hard inquiry on your credit report, which may temporarily lower your score. Limit new credit applications in the months leading up to your mortgage application.
   *Pro tip: once you apply for a mortgage you can apply with other lenders without having another hard inquiry on your records for the next 45 days- so don’t be afraid to apply with more than one bank!
5. Diversify Your Credit Mix: Lenders like to see a mix of different types of credit, such as credit cards, installment loans (like auto loans), and retail accounts. If you have only one type of credit, consider diversifying to improve your credit score.
6. Don’t Close Old Accounts: Length of credit history is a factor in your credit score. Closing old credit card accounts can reduce the average age of your credit history. Even if you don’t use them often, it’s generally wise to keep old accounts open.
7. Become an Authorized User: If you have a family member or friend with a good credit history, consider becoming an authorized user on one of their credit accounts. Their positive payment history can benefit your credit score.
8. Seek Professional Advice: If your credit situation is complex or if you’re struggling with significant debt, consider consulting a credit counseling agency or financial advisor. They can provide tailored advice to help you improve your credit.
9. Consider using a Secured Credit Card: Unlike traditional credit cards, secured cards allow you to pre-load a certain amount (usually at least $200) onto the card and borrow against that amount monthly. And while these cards don’t give you a line of credit, they do report your payment history to the credit bureau. If you are struggling to qualify for traditional credit cards, secured cards are usually much easier to be approved for.
10. Be Patient: Building good credit takes time. Positive changes won’t happen overnight, but with consistent effort and responsible financial habits, you can steadily improve your credit score.

Building and maintaining good credit is a vital step on your journey to homeownership. A strong credit score can open doors to better loan terms and lower interest rates, potentially saving you thousands of dollars over the life of your mortgage. Start working on your credit today, and when the time comes to apply for a home loan, you’ll be well-prepared to make your homeownership dreams a reality. Remember, your financial future is in your hands, and responsible credit management is the key to unlocking it.