Need a Mortgage? 8 Ways to Improve Your Credit Score
When most people think of purchasing a home, their minds go instantly to the fun of going to open houses and scheduling showings to find the home of their dreams. The reality is, before you go house hunting, the first step is to make sure your financials are in order. You need to know your credit score.
After the crash of the housing market several years ago the new Qualified Mortgage Rules, have made it more difficult to obtain financing to purchase a home. Avoiding bad credit plays a crucial role in your ability to obtain a mortgage, especially with a low interest rate.
Following these 8 simple steps you will be able to improve a bad credit score or maintain a good one.
- Find Out Your Credit Score
Every year you can obtain a free credit report from the three bureaus: Experian, Transunion, and Equifax. Once you see your report you can be aware of any issues that need to be improved.
- Correct Any Mistakes
There can be mistakes on your credit report and they can stop you from obtaining a mortgage. Once you have your credit report it is important that you correct any mistakes that you see. This can be a daunting process because no one else is going to do it for you. However, 1 in 4 of the people that are turned down for mortgages annually are declined due to errors on their report. Follow the step-by-step directions found on the websites of the credit bureaus to correct any inaccuracies in your credit report.
- Be on Time
Pay your bills on time every single month. Late payments affect your credit score, so always be on time.
- Pay More Than the Minimum
While making minimum payments on time every month is helpful, it is even better to pay over the minimum each month. Even if you are only able to make a small additional payment to the principle, it shows lenders you are working to pay down your balances. Not only will this look good on your credit report, it will help you save money in the amount of interest you will pay.
- Keep Your Balances Low
Many lenders recommend that you should not use any more than 50% of your total credit limit on cards. Work to keep lower balances to show greater responsibility with your debt and finances. If your balances are currently higher, work to pay them down before applying for a mortgage.
- Pay it Down, Don’t Move it Around
Lenders have caught on to consumers that shift debt from one card to another. When you do this you will end up paying extra transaction fees that will not benefit you in the long run. It is always better to work on paying your balances down instead of moving them from card to card.
- Don’t Close Accounts
Many people work to payoff their balances and then close their account. Closing credit accounts immediately before applying for a mortgage can hurt your credit. Keep your accounts open, even if your balances are paid off, at least until you close on your loan.
- Don’t Make Any Big Purchases
When you are getting ready to apply for a mortgage avoid any other large purchases on credit. Wait to purchase the new car or luxury vacation until your loan is approved and finalized. Lenders become leery when they see major changes in your credit report right before purchasing a home.
Improving your credit can take time, but the only way to increase your credit score is with good consistent choices over time. Begin today making the changes discussed above to set yourself up to be approved for your mortgage in the future. Good choices now will only pay off for you in the future.