Do you cringe at the thought of a lender having received a copy of your less-than-stellar credit score? If you're thinking about buying a home, you may want to think twice before going through the process. Read on to find out exactly how a poor credit rating will affect the terms that will be applied if you are applying for a mortgage loan.

The Importance of Your Credit Rating when Buying a Home

In an economy which relies mostly on a credit system, it is no wonder why your purchasing power suddenly becomes diminished if you have a poor credit rating. When you're applying for a mortgage loan, for example, you are basically in competition with another home buyer or even yourself.

This holds true in such a way that if you are applying for the same mortgage amount as another individual with a higher credit score - chances are you will get a higher monthly premium or interest rate. On the other hand, if you have a glowing credit score, the terms of the mortgage loan will work more in your favor.

Credit Repair versus Consulting a Multiple Listing Service

Now, what are the things that you need to take into consideration if you are in the process of applying for a mortgage loan? Instead of consulting the MLS or Multiple Listing System which real estate brokers use, it would be more to your benefit if you will work on repairing your credit.

Basically, your credit score will serve as a gauge for the bank, lender or other financial institution to determine whether or not you can afford the specific mortgage amount that you are applying for. It also serves as their basis for applying a particular interest rate on your loan, as well as determining what your monthly mortgage premiums should be.

How to Work on Fixing Your Credit Score when Applying for a Mortgage Loan

Let's say that you have already decided that your plans of buying a home will push through. About six months prior to the time that you will apply for a mortgage loan, you should already be taking steps towards improving your credit rating. Here's what you can do:
1. Get free copies of your credit report.
Annually, you are entitled to receive one free copy of your credit report from the three credit reporting agencies: Equifax, TransUnion and Experian. As soon as you receive the reports, examine each one closely and compare it with your personal records. You can actually report the errors and have them corrected to somewhat improve your credit rating.

2. Make sure that your current spending habits are geared towards improving your credit rating over time.
Late bill payments or not paying down your credit card balances will all work against your credit score. A year or so before the time that you know you will be applying for a mortgage loan, you should already have spending habits which are geared towards improving your credit rating.

3. Seek the help of a credit repair agency if necessary.
If you see that it will be impossible for you to get a reasonable interest rate with the credit score that you currently have, you might as well seek the help of a reputable credit repair agency. They will be making an assessment of your current financial situation to see how your credit rating can be fixed. Factors like your debt-to-credit limit ratio will be considered - especially if your credit cards are all maxed out.

By following these three steps, you will more or less be able to improve your credit rating prior to applying for a mortgage loan. As a result, you will be entitled to receive more borrower-friendly terms and finally be on the way towards owning your dream house.