First, make certain all the information on your credit report is accurate.  You can get a free credit report at www.annualcreditreport.com without having to join something or pay a monthly fee. They will send you a report from each of the three credit companies.  Go over each one with a fine-toothed comb watching for:

• Late payments that weren’t really late
• Account balances that are higher that the actual account balances
• Credit limits that are lower than they actually are
• Accounts that do not belong to you
• Accounts you thought were open but are listed as closed
• Flag any credit lines that are over limit
  

Check your credit lines that are over the credit limit and pay them down to 30% or less of the credit limit.  For example, if you have a credit limit of $600, then pay it down to $180 or below.

List all of your credit balances from lowest to highest, multiplying each credit limit (not the amount owed) by .3 to find out what 30% of the balance is.  Subtract the actual balance from the 30% target to see how much money you will need to pay the balances down.  Do not pay the balances completly off.  Show the finance companies that you are responsible with your credit and not living off your credit cards by maintaining a 30% or less balance on each card.

Student Loans

If you had $20,000 in student loans and still owe $19,000, don’t try to pay it down below $13,000.  It is better to take that same money to use for a down payment.  Just don’t allow you student loans to become defaulted or to go into forbearance.  What can happen is your credit report may indicate that you were given $20,000 in student loans (this is considered your credit limit) and when you go into forbearance, interest continually accrues and will show on your credit report that you are over your “credit limit.”  If that has happened, contact your lender and ask them to change the way it reads on your credit report.

Stop These Practices

If you are paying bills, buying gas or groceries with your credit card and then you pay the balance off at the end of each month, stop that now.  Allow your cards to have a 30% balance, but don’t go over that.

If you have a few cards with a zero balance or cards that have sat around without you using them, go charge something on them.  Maintaining a 30% balance shows financial responsibility.

Almost There!

Once you pay down your card balances and get your student loans in order, then pull a second credit report and go through it again.  Now is the time to dispute any incurrent items on your report.  You file a dispute with the credit bureau on an item and it is time for the listing company to “put-up-or-shut-up.”  The reporting company has thirty days to counter the disputed claim. If they don't, it is removed from your credit.

You may have to go through your report 2 or 3 times to clear all of the incorrect items.  But, don’t let this stop you from your home buying process.  As your credit score improves, you can always refinance your home to get a better interest rate. Only wait to buy and take the time to improve your score if it is below 580.