If you are considering treading back into the real estate market in 2009 (and for the sake of recovery of this segment of the economy, we hope people will be doing this) you will want to ensure that your credit is in optimum shape! Come January 1, when all the gyms and diet centers start bursting with their annual spike of clientele, is the time to focus on increasing your credit score in preparation for that awesome deal that may unexpectedly come your way. Don’t be unprepared; most experts predict that when the housing market starts to turn, it will be a rapid recovery.

Why is checking your credit score particularly important this year? Everyone knows that a good credit score is necessary to get the best loan rates; frankly, these days, just to get any sort of loan! Given that the the credit crunch that has affected consumers for more than a year now, banks and lenders have been requiring higher scores as mortgage underwriting standards tightened. Even if you assume that you have done nothing that would affect your credit score, there are factors beyond your immediate control that may have lowered your score without your knowledge.

The most common scenario “stealthily” affecting credit scores lately is the reduction of a consumer’s credit limits. For any number of reasons, banks may reduce the credit limit on a consumer’s account in order to “reduce their risk”. Their assessment of risk, however, may not be based on actions you’ve taken on your account, but a “general” risk assessment of consumer’s with similar credit scores and their payment track records. Those with credit accounts that haven’t been used in a while might also be affected in this environment, as these may be simply closed by the bank without your consent.

The reason that either of these two acts may reduce your credit score is that a major factor in calculating an individual’s credit score is credit utilization. When your total available credit shrinks, the percentage of credit that is being used goes up, thereby increasing the potential to do some damage to your credit score.

So if you do plan on considering a home purchase in 2009, here are some things you should do to keep your credit in check:

Check your credit report regularly! This is something you should be doing every few months at all times to make sure everything is accurate. Here is a great article to guide you through this process.

Stop applying for new credit cards. I know, especially at Christmas it is very tempting to get that extra 10% off your entire order just by applying for XYZ’s chargecard; but is saving a few dollars worth losing 10 points on your credit ctore because you have “new credit” (and new debt) added?

Don’t max out your credit cards! Pay your balances down as much as you can equally across all your credit cards so that no single card is close to it’s limit. Approximately 30% of your FICO score is based on the ratio of the amount that is owed on active cards to your available credit.

Use your credit accounts (wisely)!. Accounts get closed when there hasn’t been activity on them for a while. Make small purchases on cards a couple of times a year (and then pay them off immediately) to keep accounts active and your available credit up.

Pay your bills before the due date. This seems obvious but some folks simply aren’t disciplined enough to do it (despite the fact the money is available). If for some reason you know you will be late, be proactive and contact the credit card company as soon as possible; payment history counts for about 35% of your credit score.

Eliminate the element of surprise next time you need to obtain credit for a necessary purchase by following these tips; you’ll be glad you did!

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