Fixing Your Credit Score in 2010 - You Should Start ASAP

If you are planning to buy a home next year, in 2010, should review your credit score right now. If your score is high, you're in a good position to apply for a mortgage loan. But if it's low, you need to work on fixing your credit score before you start applying for loans. Here's why.

Mortgage underwriting guidelines will be stricter in 2010 than they were in the past. Lenders are simply unwilling to make risky loans these days, following the wake of the subprime crisis that devastated our economy. So you will need to have your financial ducks in a row if you want to be approved for a loan. Among other things, this means fixing a bad credit score (if you happen to have one). Here are some tips to help you do that.

Start by Getting Your Credit Score

The first thing you need to do -- obviously -- is obtain your FICO credit scores from all three of the reporting companies (TransUnion, Equifax and Experian). The FICO score is the one most lenders will look at when considering you for a loan, so it's the only one you should care about right now. To learn how to purchase your scores the right way, check out this important lesson.

Note: As of February 2009, Experian (one of the three credit-reporting companies) stopped giving consumers access to FICO scores based on their Experian credit files. But you can still get your Experian PLUS score®. I know it's confusing, but that's how this industry works. Just know this. Your TransUnion and Equifax scores will based on the FICO scoring model, but your Experian score will be based on a different scoring model. Still, you'll get a good idea where you stand by looking at all three. If the score you get from Experian is wildly different than the other two (and the other two are close), then just forget about the Experian number and get on with life.

Do you need to work on fixing your credit score before applying for a mortgage loan? Well, in order to determine that, we need to talk about bad, good and excellent credit. Here's how to figure out where you stand.

What Score Do You Need?

What is considered a good credit score in the current economy? Here's my position on this. Good, bad, excellent, fair, poor, terrible ... just forget about these labels for now. They only confuse things. The only thing that matters is that you can (A) get approved for the loan and (B) secure a decent interest rate on the loan. In order to do that, you'll need to have a credit score above a certain number, based on the lender's underwriting guidelines.

You might get approved for a loan with a score of 660, for example, but you won't get the best rate with that number. In order to satisfy both of these goals (approval and good interest rate), you'll probably need a score of 760 or higher.

So, do you need to worry about fixing your credit score at this point? Well, if it's below the mid 600s, you definitely need to improve it. If it's in the low 700s, you'll probably get approved for a mortgage, but you won't get the best rates. If your score is in the mid 700s or above, you're in great shape. These numbers are not written in stone, mind you. But they do represent current trends and averages.

And remember, your credit score is not the only thing a lender will review. You'll also need a down payment of some kind, as well as sufficient income (relative to the amount you want to borrow). We will talk more about these "other" qualifying factors below. But for now, let's stay on the topic of fixing credit in order to buy a home.

Fixing Credit Takes Time - So Start Today

Here's an important point you should take away from this article. Fixing a credit score requires time, patience and persistence. It doesn't happen over night. Depending on the actions you take, it may take several months to improve your score significantly. It also depends a lot on your past credit history, so there's no way I can give you any estimates for reaching your goals. There are too many variables to put a time frame on it.

The point is this. If you plan to buy a home in 2010, and your credit score is lower than the ranges mentioned above, then you should start fixing it today. The sooner the better. The more you can boost that number between now and your first mortgage application, the better! This will help you get approved for the loan, and will also help you secure a good interest rate on the loan. This can save you thousands of dollars on your monthly mortgage payments.

Will you be fixing your score over the next few months? Need some guidance to get started? Here's an article + video that explains how you can raise your score quickly, in advance of buying a home. It's worth a look.

Other Tips for Buying a Home in 2010

So, what else can you do to increase your chances of getting a mortgage in 2010? We have talked plenty about your credit. But that's not the only piece of the puzzle. You also need to start saving money -- the more the better. You'll need some extra cash for your closing costs, moving expenses, and other "pop-up" expenses that are common during this process.

You should also continue your research, especially in the area of mortgage loans. This is where a lot of first-time buyers make big mistakes. So if you only read one more article before leaving this website, make it this article on mortgages. You'll be a wiser and better-prepared home buyer if you do.

I hope this lesson has helped you understand the dynamics of fixing a credit score, and I wish you all the best in your 2010 home buying process. Good luck!