By Lew Sichelman

Question: My wife and I want to buy a home. She has good credit but mine is just OK. Can you give us some advice?

Answer: Your short, to-the-point question requires a rather long answer. So here goes.

Unless your name will not be on the mortgage, your credit record will count just as much as your wife’s. Therefore, start working on cleaning up yours right away. If you haven’t a clue how to do that, many lenders and government offices at the federal and local level offer lots of free brochures on the steps that need to be taken. See more on shoring up credit ratings before getting a mortgage.

At this point, though, stay away from anyone who wants to charge you money. Unless your finances are a mess, you can do this pretty much on your own. If not, look for help from a nonprofit counseling agency in your area.

Also look for a mortgage professional who has access to one of the many “what if” simulators on the market these days. These dandy little software programs will allow you and the lender to sit at a computer and explore the effect certain actions — adding or removing accounts, for example, or correcting errors — could have on your score before you actually make any moves. With a simulator, would-be borrowers can “play” with any number of possibilities and combinations until they find a solution that works best for them in raising their all-important mortgage scores, which are modeling systems used by lenders to assess risk. Perhaps equally as important, the simulators will allow you to stay away from misguided steps that could send your score tumbling.

While you are working on improving your credit — and your score along with it — sit down with a lender and get prequalified for a loan. This is another key step that will save you a lot of time and heartache. By getting prequalified, you will know exactly how large a loan you and your wife can obtain. This isn’t the same as being preapproved, which is the lender’s commitment to make a loan at a certain amount and rate as long as the house you chose appraises and your finances don’t change by the time the loan is ready to close. But it will prevent you from spinning your wheels by looking at houses you simply can’t afford. If all of this so far is gibberish to you, you and your bride would be well advised to take a class for first-time home buyers and hit the library for books on home buying. There are dozens of tomes on the topic, but one of my all-time favorites is by my long-time friend and colleague Peter Miller. It’s called “The Common Sense Mortgage.” Another good Miller tome is “Buy Your First Home Now.” Both are published by Harper Perennial. Take your time. If your finances are not up to snuff, you’ll need to go slow anyway. Yes, mortgage rates are still pretty low by historical standards — as I type this, only 1 percentage point or so above a 40-year low — but prices might be falling. At the very least, prices probably are going to remain stable for some time until the current “market correction” runs its course. And it doesn’t look like loan rates are going up any time soon. Once you feel comfortable about the home-buying process, find a real estate professional you can trust. Ask for references from friends and relatives who have been through the trials and tribulations that are part and parcel of buying a house, which is rated one notch below death on the stress meter.

If you know pretty much where you want to buy, consider using an agent who specializes in that area or is the area’s top producer. There’s nothing like an agent who knows a neighborhood from top-to-bottom. And there’s a reason someone racks up more business then anyone else — they’re usually good at what they do. Another possibility is to find an agent who represents buyers and no one else. Not an agent who represents buyers part of the time and takes listings and represents sellers the rest of the time. You want an exclusive buyer broker, someone who does nothing but act on behalf of buyers and is fully trained in that aspect of the business.

Above all, though, take the step of finding an agent very carefully. The agent you pick will be your guide through the entire process. Also realize that if you chose the wrong person, you always can say goodbye and go with someone else. This should get you and your wife started on the road to homeownership. If you run into any roadblocks along the way, write back and I’ll try to offer more advice. Good luck!

Think of your credit score like you would a grade in school. A teacher calculates grades by taking scores from tests, homework, attendance and anything else they want to use, weighting each one according to importance in order to come up with a final single number (or letter) score. Your credit score is calculated in a very similar manner. Instead of using the scores from pop quizzes and reports you wrote, it uses the information in your credit report.

The number itself can range from 300 to 900. The formula for exactly how the score is calculated is proprietary information and owned by Fair Isaac. Here, however, is an approximate breakdown of how it is determined:

• 35% of the score is based on your payment history. This makes sense since one of the primary reasons a lender wants to see the score is to find out if (and how timely) you pay your bills. The score is affected by how many bills have been paid late, how many were sent out for collection, any bankruptcies, etc. When these things happened also comes into play. The more recent, the worse it will be for your overall score.
• 30% of the score is based on outstanding debt. How much do you owe on car or home loans? How many credit cards do you have that are at their credit limits? The more cards you have at their limits, the lower your score will be. The rule of thumb is to keep your card balances at 25% or less of their limits.
• 15% of the score is based on the length of time you’ve had credit. The longer you’ve had established credit, the better it is for your overall credit score. Why? Because more information about your past payment history gives a more accurate prediction of your future actions.
• 10% of the score is based on the number of inquiries on your report. If you’ve applied for a lot of credit cards or loans, you will have a lot of inquiries on your credit report. These are bad for your score because they indicate that you may be in some kind of financial trouble or may be taking on a lot of debt (even if you haven’t used the cards or gotten the loans). The more recent these inquiries are, the worse for your credit score. FICO scores only count inquiries from the past year.
• 10% of the score is based on the types of credit you currently have. The number of loans and available credit from credit cards you have makes a difference. There is no magic number or combination of types of accounts that you shouldn’t have. These actually come more into play if there isn’t as much other information on your credit report on which to base the score.

According to our bankruptcy trustees, a number of questions people often ask relate to credit repair after bankruptcy: I filed for personal bankruptcy in Canada - for how long will it stay on my credit report? Can I somehow repair my credit after filing for bankruptcy? Is it possible to erase bad credit history?

Your credit rating determines whether or not you will be able to get a loan in the future. A bad credit report might mean that you will not be able to get a car loan, mortgage, or debt consolidation loan.

A bad mark on your credit report - such as filing bankruptcy - will (except in very special situations) remain on your credit record a maximum of seven years. After that, the information is dropped from your record….

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