When you decide that you are ready to purchase a home, you should check your credit immediately. This is the time when it can make a lot of sense to pay for credit reports and credit scores. In general, you should try to give yourself at least three months to deal with any issues in your credit reports. This means that if you want to buy a home in July, you should start checking your credit reports in March. You will certainly have surprises coming at you from several directions. Don't let your credit be one of them.

Spruce It Up

When you receive your credit reports, look for anything that will lower your credit scores. In particular, search for any errors: accounts that are not yours, erroneously reported late payments, and negative items that should not appear in your reports. If you find any errors, start the process of getting them corrected as soon as possible. You may have to dispute them several times before they are removed, and you might even need to hire a lawyer. If you're going to go through this hassle, it's better to do it at a leisurely pace. You don't want a simple credit-reporting error to keep you from buying a home.

You should also look for some easy-to-fix items that might lower your credit scores. If you're using a high percentage of your total available credit, see if you can get that percentage down before you get a mortgage. Again, the sooner you do this, the better. Just because you pay down a balance on your credit card, does not mean that the credit card immediately reports your new balance to the credit-reporting companies. It takes time, and you should give them at least a month.

Pay Down or Down Payment?

As you get ready to buy your home, you may consider accumulating funds for a down payment. It can take months or years to accumulate enough money to have a significant down payment. If you save up the money, but you also have credit card balances, you're faced with a difficult decision. Should you use that money for a down payment, or should you use it to pay down your credit card balances? The answer should depend on what will benefit you the most financially.

If paying down your balances will substantially improve your credit score, you might get a much better rate on your mortgage. As a result, you might save substantial money on your monthly payments, and also on total interest costs throughout the life of your loan. Before you make a decision, run the numbers and see what's best. You'll need to take into account how long you plan to stay in the house and make payments, and whether or not your down payment can help you avoid private mortgage insurance (PMI).

You should also keep in mind that interest payments on your home mortgage may be tax deductible. If you use your savings to pay down your debts, you'll need to get a bigger loan. In a sense, you are using money from the mortgage to pay down your credit card debts. As a result, the interest payments that you would have been paying to the credit card company become tax-deductible interest payments. Before you go with this strategy, check the tax laws to make sure that your mortgage interest will be tax deductible.