Your credit report is an important consideration to lenders reviewing your financial profile. If you have a history of paying your monthly obligations on time, that’s a signal to a lender that you are likely to make your monthly mortgage payments on time as well. So your credit can be a factor in the kind of mortgage program you may qualify for.

Your credit history can also affect the amount required for a down payment, the amount of money you can borrow in relation to your income, and the interest rate you are offered. But keep in mind that even if you have no established credit history or less-than-perfect credit, there are still loan programs that can help you buy a home.

Here are some steps you can take to establish or improve your credit rating:

  1. If you’ve always paid cash or used checks to make purchases and haven’t established a credit record, it’s a good idea to do so before you buy a home. You can use credit to purchase low-priced items, make prompt payments and pay off the balance.
  2. Some loan program guidelines allow “alternative” credit records. If you have a limited credit history, your paid receipts and canceled checks for rent and utility payments can help you document a pattern of paying your monthly obligations on time.
  3. If you already have outstanding loans or credit card debts, try to pay off as many as possible. The amount of monthly debt you are responsible for paying reduces your capacity for taking on housing debt (via the back-end ratio, discussed above).
  4. Even if you are a consistent, on-time bill payer, you can damage your credit rating by just having a lot  credit cards with large credit lines. Contact any creditors for accounts which you no longer use and request that they close the account.
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