Once you've decided to buy a home, or better yet, well-before start thinking about your credit. The earlier you begin monitoring your credit, the more of a positive impact you can make.
1. Not all credit reports are created equal.
Not to dissuade anyone from using any of the free credit report services online, but the best way to check your credit is to obtain a credit report from a mortgage professional. Not all reports are the same, and your score may vary among different agencies. The FICO Risk Score is most likely to be used by lenders and has the most strict criteria. Having a mortgage professional run your credit ensures not only that you are looking at the right report, but they can help you interpret the results and identify any quick fixes that may maximize your score.
2. Evaluate (and change) your spending habits.
To have a good credit score, you have to take on credit. Notwithstanding delinquencies, the longer you've had credit, and the more credit, the better. A few concrete tips: Don't close out credit cards without a good reason (like avoiding an annual fee) and keep credit card balances at or below 30% of the limit. This might mean spending on less on several cards rather than carrying a large balance on a single card, even if you pay it all off each month.
3. Glitches and Fixes.
Reviewing the report also provides an opportunity to correct minor glitches, like a doctor's bill that was eventually paid but was reported to agencies and never remove. Some more major issues may be rehabilitated by engaging a credit repair company, while other major issues (like bankruptcy) may haunt you for up to 10 years.
A collection account, even for a very low amount, can reduce your