How To Prepare Your Credit Score To Buy A House
Buying a home can make your mind run a million different directions all at once.
There is a lot to consider and prepare for before finding a lender or real estate agent. But as you’re getting ready to start the process and apply for a home loan, you notice something unfortunate: your credit score needs some work.
Don’t let this information dampen your spirits!
Before you start worrying that improving your credit is impossible, remember repairing your credit score can be simple.
All you need is to know where to begin. And the best place to start is at the source.
Starts Simply: look at your credit report
Building something usually starts with a foundation then everything is established on top of that.
Your credit score is no different.
Whether you’re just starting, or your score needs some repair, the foundation of your credit score lies with the credit monitoring bureaus:
They exist to monitor your Fair, Isaac & Co. (FICO) credit score and maintain reports on it.
As a courtesy to the vast credit holding public, all three bureaus will each give you a free copy of your credit report when requested.
Additional copies may come at a charge, but for right now you should focus on the initial reports.
Once you have a copy of your credit report in hand, start searching it for information about what has been damaging your credit score.
A credit score can be seriously damaged by the following situations:
- Late payments
- Missed payments
- Payments sent to a collection agency
- Defaulting on a loan
- High credit balances
- Credit balances that have been maxed out
- Applying for multiple credit cards in a short period
- Closing credit accounts
Wow, that’s pretty scary.
Your credit score is a delicate thing and can be damaged by even the slightest hit. However, damage to your credit score is not always your fault.
We also recommend checking your credit via www.annualcreditreport.com at least once a year. Pulling your credit report will help you ensure you’re not being unfairly penalized for old, paid, or settled debts. If something is inaccurate, erroneous, incomplete, or obsolete – you can contact credit bureaus and creditors to have them remove these accounts from your report.
Keep up with payments
The easiest way to boost your credit score and keep it strong is by paying your bills on time.
Existing debt, credit card balances, and other monthly expenses are all viable factors that can affect your credit score (for better and worse).
Current debt and credit card balances are the major factors you need to take care of each month.
However, if you know that there’s a possibility you’re going to be late on a payment, don’t just sit around. Contact whoever the payment must go to and let them know the situation.
Many companies can be understanding if circumstances are difficult.
Keeping up with your monthly payments will help your credit score, but at a slow pace, that takes time. Luckily, it’s not the only way to boost your credit score.
Mange your credit cards
Here’s where many buyers and borrowers get in trouble when it comes to their credit score: responsible use of credit cards.
You don’t even have to limit yourself to one. Varied credit can be a sign to lenders that you can manage your finances efficiently and with little difficulty.
However, to get your credit cards to work for rather than against your credit score, there are a few things you’ll need to know.
The first thing is to keep the balances low.
No matter what the spending limit on any of your cards is, keeping the balance below 30% is key. It keeps your monthly payments smaller and your debt in control.
Additionally, please do not apply for any new credit before you apply for the mortgage. Opening new accounts will add additional debt to your credit which will change the length of your credit history and add inquiries. All these factors will work against your score and may prevent you from getting approved for your dream home.
Lastly, don’t close out credit accounts just because you don’t use them anymore.
Even if you have a card that’s been paid off and no longer in use, keep it open (unless you’re charged to keep it open). Closing a credit account can negatively impact your credit score.
Don’t Worry About It
The best piece of advice for credit score improvement is to watch, but not obsess over it.
Hovering over your credit report and score doesn’t make the number move any faster.
Instead of constantly fretting about your score, take some time to explore other tasks you need to complete for your home loan application.
If you stick to the advice from above, your credit score will take care of itself.
Keep an eye on it from time to time, of course, but don’t check it every day. Stay on top of what needs to be taken care of and one day you’ll be looking at a strong credit score that will help you get a home loan.