So you've saved money for a down payment, located a neighborhood you want to live in, and you're ready to start working with a Realtor.

Congratulations!! However, unless you intend to pay cash for the home, you most likely will be working with a bank, or savings and loan, to arrange a loan for part of the purchase price. Before you write the offer, one of the first things you should do is examine your credit record.

Your credit record is a representation of how you have handled your credit in the past, and how you are handling it currently. Your credit record is retained electronically by three national credit repositories: Equifax, Experian, and Trans Union. The information contained in an individual's credit record directly affects their credit score, and ultimately their ability to obtain financing, so it is very important you know what your credit record contains. Ordering a copy of your credit report can do this.

A credit report is a compilation of the information in your credit record. It includes debts and associated payment histories for people and companies who have loaned you money. These can include banks, credit card companies, auto finance lenders, and department stores. The information for each credit item will include the amount that you borrowed, the remaining balance owed, whether your payments were made on time or late, and were the agreed upon amounts paid. It is important that you check your credit report at each of the three national repositories. Credit records may vary from one repository to the next, so check each company to make sure their information is accurate. Based upon the information contained in your credit report, each repository then creates a credit score.

A credit score is a statistical tool that is used to predict the potential for a consumer to pay back a loan. Credit scores are determined by an analysis of all the pieces of information contained in your credit record, and then reducing that analysis to a number. The credit score most widely known today is the FICO score. While much of the actual programming is proprietary, factors that are included in your FICO score calculation include: your record of repaying loans, how often you apply for new credit, how much debt you have outstanding, any tax liens, bankruptcy information, how long you have used credit, and the type and mixture of credit. Race, gender, marital status, and national origin are not used in calculating a credit score. FICO scores range from approximately 300 to 900 points, and statistics show that borrowers with higher credit scores perform better than borrowers with lower scores.

Credit scoring, while important, is just one of the factors used in determining your qualifications for a home loan. Lenders also look at your employment history, the value of the home you want to buy, the amount of your down payment, the type of loan you are trying to obtain, and monthly debt ratios, to facilitate the home loan evaluation. After all the relevant information has been collected, the lender can then objectively decide whether to make you a loan, how large the loan will be, and often at what interest rate.

There are things you can do to increase your credit score. Here is a list of some credit do's and don'ts:

• Do pay at least the minimum amount required on your account.

• Do pay your bills on time.

• Do keep your overall debt at a reasonable level compared to your income.

• Do close down accounts you never use (tip: close the youngest accounts first).

• Do use your credit wisely.

• Don't pay less than the minimum owed.

• Don't be late on payments. This is a real negative mark on your credit record.

• Don't apply for too much credit.

• Don't charge up to the credit limit allowed to you.

You should make it a practice to check all three credit repositories once a year. Your ability to obtain a loan is partially dependent on the accuracy of the information in your credit record. If you find a mistake, contact the repository that issued the report containing the incorrect information and get them to correct it. Disputes must be investigated within 30 days, and the consumer will receive a written report within five days of the completion of the investigation, with a copy of the new credit report if the investigation resulted in a change.

If you manage your credit wisely, you will establish a good credit history, which means you will be more likely to get a loan, and with your Realtor’s help, purchase a home of your own. And that, after all, is the American Dream!

The information presented here is for informational purposes only and should not be interpreted as tax, legal, or investment advice. Individual cases are all different, so this information should be used only in conjunction with the appropriate professional advice.