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How to Prepare Your Credit for a Mortgage Loan in 2013

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If you want to buy a home in 2013, now's the time to begin preparing for perhaps the most cumbersome of all loan types.

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It's never too early to begin thinking about your New Year's resolutions for 2013. If one of those resolutions is to buy a home, then now is the right time to begin preparing for perhaps the most cumbersome of all loan types: The home mortgage.

I got the idea to write about this from a question I got on my Facebook page.

Question: I'm 24 and I'd like to buy a house in the next six months. The rates are so low right now and my parents are telling me that I may regret missing the unprecedented combination of low rates and competitive home pricing.

I pulled my credit reports last week and was surprised to see my FICO score around 680. All I have are some retail store credit cards and one old collection from when I was in college and forgot to pay a final utility bill after I moved.

I paid the collection in full yesterday, so I'm expecting my score to go up quite a bit. Is there anything else to do to prepare for a mortgage loan?

Validate Your Credit Score

For the sake of clarity, I traded several messages with this Facebook fan of mine and got further details on some issues surrounding her credit.

Her credit score is 680, but it wasn't her FICO score. To help validate the 680, I asked her to pull her scores from other free sites like CreditSesame and CreditKarma and it looks like she's in the 680-715 range across the board. Her legit FICO scores will likely be in the same neighborhood.

The two issues she is dealing with are the collection that's still on her credit report and the fact that all of her retail store cards have balances. The collection is not going to go away simply because she paid it. It will be on her credit file for two more years.

Still, the fact that it's so old is helpful because as negative items age they lose value and don't impact your FICO scores as much as they did when they were newer. And, the fact that it's the only negative item on her credit report is great because she hasn't exhibited a pattern of negative credit management.

Take Action on Credit Cards

The issue with the retail store cards is actionable - right now. I recognize we're on the front end of the holiday shopping season and using credit cards to buy gifts is a necessity for some.

The good news is because credit card balance reduction is so actionable, she (and you) can go right ahead and take care of all your holiday shopping on credit cards if you'd like. Just know that you'll have to pay them off right away if you are planning on going through the pre-qualification process any time soon.

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