1. Do Not Apply for a Home Loan Without First Checking Your Own Credit. Knowing what your credit score is can be helpful when preparing to buy a new home but it is even more important to verify that you do not have any negative or erroneous information on your credit report prior to applying for a home loan.

Simply go to www.annualcreditreport.com and order a credit report from each of the major consumer credit reporting agencies, Experian, Equifax, and Trans Union. This is the free site made available by Federal Law that allows you to run a full credit report from each of the 3 credit reporting agencies once per year. You will not get a credit score through this site for free but It is good practice to do this annually to ensure inaccurate information is not being reported on your credit report. Make sure to run a report from all 3 credit reporting agencies because some creditors or companies only report to 1 or 2 of the credit reporting agencies and mortgage lenders will always run a credit report from all three credit reporting agencies. That way you can verify that all of the information being reported about you is correct and there won’t be any surprises when applying for a home loan.

Review the report entirely to verify that your personally identifiable information is accurate, such as name(s), address, social security number, date of birth, credit accounts, loans, and employment history. Income information and banking information should not be contained in your credit report.

If your find errors, you should contact the creditor or company that reported the information to the credit reporting agency and file a written dispute. The credit report will contain instructions on submitting a dispute to rectify inaccurate information. If you believe the errors are the result of Identity Theft, complete a report immediately at IdentityTheft.gov.

If you find non-credit related collections such as medical, utility, cable, cellular phone, or satellite TV, it is important that you get these items removed as soon as possible. Non-credit related collections are common as people relocate or think they had paid the bill entirely only to find out years later that a small amount remained. The company you owe the debt to will typically sell the debt to a collection agency and that agency will report the debt to one or more of the credit reporting agencies only to be discovered when you are trying to buy a home or apply for other credit.

You should contact the collection agency directly and arrange to have the collection paid in full ONLY AFTER they have agreed to provide you a letter stating they will REMOVE the collection from your credit report. The debt owed is the only leverage you have so do not pay it until they have agreed to do this. Most will just report the debt as paid in full but it will remain on your credit report and affect your credit score negatively. Once paid, NON-Credit related collections are supposed to be removed as if they never existed and therefore, no longer negatively affecting your score. Mortgage lenders can typically use the letter you receive from the collection agency to remove the collection in as little as 3 days if you are very close to buying a home or already in contract to buy a home.

2. Do Not Apply for ANY New Credit During Your Home Purchase Transaction.

Some lenders monitor credit reporting agencies during your transaction to identify if you have applied for any other loans or credit while others run a complete new credit report shortly before closing to ensure no new debt has been created. Any new debt created after your initial approval can jeopardize your home purchase final loan approval as the monthly payment for that new debt may push your debt-to-income ratio above acceptable levels. Best practice is to wait until after the purchase transaction has been completed and you own the home before applying for any new credit.

3. Do Not Be Afraid to Shop Around – Credit Inquiries Are Unlikely to Harm Credit when Mortgage Shopping.

This fear is unfounded as you are able to have your credit run by multiple mortgage lenders over a 45 day period and it will count as only 1 credit inquiry on your credit report. In general, unless you have had multiple inquires from other sources such as credit cards, auto loans, installment loans, etc. over a 90 day period, inquiries typically have little impact on your credit score.