Credit Rebuild Tips for First-Time Homebuyers

The current lending industry is based on credit scores. Therefore your credit report is the most important piece of document that gives a lot of financial information about you. When you dream of buying a house, you need to finance it legally and when the question comes to mortgage financing there is a real importance of a good credit score. Before you calculate a mortgage amount you can afford. All first time homebuyers must check their credit report because the lenders will look into the score before lending you a mortgage loan.

A good credit score means you're financially responsible and you have been handling all your financial obligations responsibly. This makes them sure that you will be regular and timely on your mortgage payments and will not default. As they become sure to some extent, they usually lend you a mortgage with favorable terms and conditions.

On the other hand, a low credit score may imply that you're financially irresponsible. Thus, lending a mortgage loan to you will be considered a risk on the part of the lender. Of course, there are certain other factors that are considered by the lenders, like your gross monthly income and status of employment, but this is the most important thing that is taken into consideration by most lenders.

You might think that a poor credit score may just keep you away from obtaining new lines of credit, but the effects go further than that. Bad credit may leave you in a careless financial state, homeless, and jobless. This is because many companies are checking your minimum credit score to decide about your financial condition. Understanding the mortgage process is vital.

What Is A Mortgage Credit Score?

Most of you haven't heard of a mortgage credit score. It is slightly different from the normal credit score. Getting a mortgage credit score is also very important, as this will determine what you pay on your mortgage process. You must know three main credit reporting agencies exist: TransUnion, Equifax, and Experian. Each of them calculates a different score for you but the score depends on the type of company that has asked for the score. If a mortgage company asks for a credit score, more importance will be given to your mortgage payment history while calculating the credit score.

A mortgage credit score is calculated by balancing all the scores given by the three agencies. The outstanding balance, monthly payments, and payment history are determined to calculate the debt-to-income ratio. So, learn what the debt-to-income ratio is before entering into the mortgage process. Also knowing the purchase price is important.

Therefore, you must have known by now that credit score is the most important thing not only while taking out a mortgage loan but also while obtaining any new lines of credit. Thus, while you calculate a mortgage amount for your dream house, make sure you repair your credit to get the best and most competitive mortgage interest rates.

Getting a home loan with a poor credit history

If you have a poor credit history due to bankruptcy or missed credit card payments, you may worry about the prospects of taking out a home mortgage loan if you're interested in getting a new house. Well, though it becomes tougher to take out a home loan at an affordable rate, it is not impossible. You just have to calculate your mortgage loan amount through a home mortgage calculator and then start with the comprehensive market research.

Some valid reasons for repairing bad credit

If you have been suffering from a poor credit score for a long time, you might have accepted it as just another financial condition. Not doing anything about fixing your credit report is another financial blunder. Here are some valid reasons for repairing your credit.

To save your dollars on interest rates

As the lending industry has entirely become a credit-based one, it is crucial for you to repair your credit score to keep on obtaining new lines of credit with favorable terms and conditions. Low credit scores mean high-interest rates. This will also directly influence the finance charges of credit card balances. If you fix your credit score before applying for a new line of credit, you can get some competitive and best interest rates.

To stop paying extra dollars on security deposits

As the utility service providers have also started checking your credit score before letting you establish a new service, improving your credit score will help you stay away from all those high-security deposits.

To lower your insurance premiums

If you're paying too much on your insurance premiums, make sure that you recheck your credit score. A poor credit score implies that you can default on your monthly installments, and therefore, you will be deemed to be a risky borrower. This will automatically increase the private mortgage insurance premiums.

Obtaining a higher credit limit, not receiving debt collection calls, and buying a new house with mortgage financing at an affordable rate are some other reasons for repairing bad credit. Therefore, if you still need to get more serious about credit repair, consider the benefits you may get in the lending industry and plunge into taking this step.

Rebuild your credit before buying a home.

You may come across lenders who would wish to lend you a mortgage loan despite having a poor credit score, but you need to make sure that you get the loan at the most affordable interest rate possible so that you don't have to scrimp later on while repaying the loan. Here are some vital steps that you have to take before you take out a home loan.

Improve your credit score.

The faster you take steps to improve your credit score, the faster you'll be able to take out a home loan at an affordable rate. Having the minimum credit score is the most important number checked by the mortgage lender before lending you a home loan.

You should pull out a copy of your credit report and then check the errors so that you're able to make sure that the erroneous information doesn't pull down your score. As you have gone through bankruptcy or missed credit card balances, you should initially ensure that you take out a home loan with a good credit score.

Diversify Your Credit Mix

Try to diversify your credit mix. Lenders always consider the types of credit accounts held. By diversifying your credit mix, such as having a combination of credit cards, conventional loans, and a small personal line of credit. All these portray your ability to manage different credit responsibilities.

First time homebuyers manage these accounts responsibly and avoid accumulating new debt. Diversifying your credit mix helps in portraying your financial competence. It enhances your prospects of obtaining a favorable mortgage when you're ready to buy your first home, said Chris McGuire, Real Estate Investor.

Order a copy of your credit report.

You're supposed to get a free credit report from the three credit reporting agencies to check your credit history. Order a copy and scrutinize it to spot the mistakes and the negative listings. This way, you will come to know where you stand financially and how you're going to plan to dispute the errors.

Dispute the errors

Everyone's credit report contains some minor errors, and therefore, you need to make sure that all this misinformation is removed from your credit reports so that it does not turn out to be detrimental to your credit score. Conduct a dispute with the credit reporting agency and dispute the dates, amounts, interest rates, and all other small misinformation in the report.


Starting the navigation to own a house includes a well-built path of credit rebuilding. It is necessary to make a comprehensive review of your credit report, implement a strategic debt management approach, maintain regular payment schedules, properly manage your credit utilization and seek new ways of acquiring one’s first credit.

Equally important is taking proactive steps to correct any inaccuracies on your credit report. Credit score improvement is like running a marathon race, not a 100-meter dash thus patience and consistency are required. To boost your credibility for mortgage options in the future that will lead you eventually to the acquisition of the keys to that newly constructed new home and what comes with it.

  • expertise badge
  • TrustLink logoTrustLink logo
  • Customer ratings on BBB
  • IAPDA logo
  • Calchamber Member
  • Calbar Registered
  • D&B
  • Trustpilot
  • yelp logo