One of the first steps to purchasing a home is to get pre-approved by a lender. Each lender has a set of requirements you must meet for them to grant an approval and credit requirements are at the top of that list.
The lender will pull a copy of your credit report to see how you have managed credit in the past. In most cases, they will be on the lookout for a least three decent credit accounts. When I say decent, I mean accounts that have granted you at least $1500 in credit and also that you made your payments on such accounts in a timely fashion.
They would want to see a payment history of at least 24months continuously, on each of these three accounts. If you have meet this requirement they will be more at ease with granting your approval due to the fact that they will be sure that you will make your monthly mortgage payment on time.
At one point or another most of us may have had a credit issue in the past, which could have lead to a collection account being reported on our credit report. Lenders frown upon such accounts and usually want you to remedy them before they move ahead with the funds for your loan.
You would be asked to contact the collection agency and make payment arrangements to settle the account. The bank usually also request proof from the collection agency to make sure the account has been settled, it's a good idea that you work on this well in advance of applying for a home loan.
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