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Before you even start looking for a home, you MUST make sure that your financial home is in good order.

Get your credit report and credit score- you can get your credit report from each of the 3 big credit reporting agencies by going to www.annualcreditreport.com and entering your information. You will have to pay to get your credit score, but that $10-20 dollar investment could save you thousands.

A credit score can range from a low of 300 to a high of 850 and is determined by looking at several factors: (these are approximations)
35% - Your Payment History
30% - Amounts You Owe
15% - Length of Your Credit History
10% - Types of Credit Used
10% - New Credit

If your score is less than 700, your financing options may be limited. People with score greater than 700, will be given better rates and banks are more flexible about the types of mortgages offered.

For example someone with a score of 620 may be offered a 30 year loan on $150,000 at 7.25, this is a payment of $1023 a month.
With a score of 720, one may get a rate of 6.25 on the same amount for a payment of $923 a month.

Thats a savings of $1200 a year or $36,000 over the course of the loan.

To improve your credit:
1) Pay your bills on Time.
2) Get current with your payments and stay there.
3) Keep card balances LOW. Your credit score looks at your total avaliable credit compared to your income (they don't want you to have too much avaliable credit), but they also look at your debt to credit amount.
4) DON'T cancel cards, pay them off and leave them alone, cards with a zero balance may help your score.
5) DOn't open more credit accounts, destroy new card applications, and refuse department store cards. Every time you request credit, they check your credit score; all those applications will decrease your score.
6) If you see an error on your credit report dispute it. Having negative items removed can dramitically improve your score.

These are just some initial suggestions.

Learn more about this author, R Hoff.
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