You KNOW that good credit pays off. It can make the difference between getting approved for a home loan or not.  It can also make the difference between being approved for a higher purchase price or a lower one, since the interest rate will vary depending on your credit.  But what happens if your credit isn't what you'd like it to be?  Well, actually there are a number of things you can do to make your credit look a little more appealing to a prospective loan officer: Pay off old balances - especially past dues and chargeoffs that have happened during the last 2 years. Items more than two years old have little effect on your current credit score. In fact, if you pay off delinquent items over two years old, it can actually bring your credit score down - something you don't want to do. Bringing that score up means you'll get a better interest rate on your loan.

Don't close existing unused credit card accounts.  Counter-intuitive tho it might seem, this can actually lower your score. Part of your credit score is based upon credit history. If you have old credit cards that you don't use very much, you still have the benefit of the credit history they represent.

Rather than trying to pay off all your credit cards, it does make sense to move part of the debt from one card to another to even out the distribution of debt. Try to keep balances as close to zero as possible, and definitely below 30% of the available credit limit when trying to purchase a home. Also, if your credit provider will increase your line of credit, the ratio of debt to available credit is automatically reduced, without you having to pay down the balance.

When married couples have separate credit card accounts, the debt can be transferred from one spouse to another to clear up credit issues for the other spouse. That spouse with clean credit can be designated as the sole borrower on the loan, but ownership of the home can still go in both names.

Find and correct errors on your credit report.  These might be balances that have already been paid, or even entries that don't belong to you! Request that these items be removed by the credit bureau. They are obligated to rectify this within 30 days.  If you're paying off items that are less than 2 years old, send in your payment if possible and mark the back of the check with the following notation: "Accepting this check is evidence that the transaction is complete and this charge will be deleted from my credit record." If necessary, the cancelled check will be proof that this should be promptly removed from your credit report if it interferes with the closing of your loan.

Contact a good loan officer and ask them for help. Most loan officers are happy to give you free advice on cleaning up your credit report as quickly as possible.  After all, they WANT you to qualify for your new home loan! In some instances you may also want to work with a credit repair company as well. 

I'm happy to provide my clients with a free CD on how to improve "less than great" credit, and how to best position your credit to apply for a home loan.   You might also want to check out MSN Money for more information on what impacts your credit score & some ways to improve it. 

Here's to your great credit!