The current market uncertainty is a challenge for the housing market. However, savvy buyers looking to purchase a new house still have an opportunity in the market. If you are looking to buy a new home, improving your credit score should be a top priority.
Importance of A Good Credit Score
An excellent credit score can not only help you secure low-interest rates but also make a massive difference to your monthly payments. A large number of mortgage lenders look at your credit score before sanctioning the loan. Hence, it important to have an exceptional score of 800+ or at least a healthy credit score between 740-799 that can demonstrate that you are a good borrower and can repay the loan.
Steps to Help You Improve Your Credit Score
Now that we know the importance of a good credit score, here are some steps that you can follow to improve your score and prepare yourself to apply for a mortgage.
1. Check for any errors on your credit report
Any inaccurate accounts, incorrect credit information, unauthorized credit checks, incorrect payment status, or outdated information on your credit report can significantly lower your credit score. You may also end up having to pay a higher interest rate. This makes it crucial to obtain a copy of your credit report through a major credit bureau and review your credit history. If there are any errors in your report, you should promptly file a formal dispute to get it corrected.
2. Pay off your debt and credit portfolio
About 30% of your credit score is based on your cumulative credit limit and credit utilization. Paying off your debts on time and holding a mix of credit to your name can help you boost your score. If more than 25% of your available credit is in debt, work on getting it to less than 10% and strategize to pay off your loans instead of opening new credit cards.
3. Pay your bills on time
Another 35% of your credit score is based on your bill payment history. If any of your bills go unpaid, it can crash your score by almost 100 points. This makes it important to check your bills, set up automatic payments, and pay bills in full within the due date.
4. Minimize credit card spending
There is no guarantee when the lender will pull out your credit report. Hence, it is best to keep your balances low and pay off a major portion of your debt in the months leading to your loan application.
5. Think before opening a new credit account
If you are opening multiple credit cards within a short time frame to increase your credit line, it could indicate to the lenders that you are too dependent on credit. Hold off on applying for new credit cards or borrowing large personal loans when you are in the middle of your home loan application.
Hiring a Mortgage Professional
If you are planning to purchase a new house, it is suggested to contact a mortgage professional. A good mortgage expert can provide financial recommendations, review your credit score, and help you find the best houses based on your score. The experts at Rex Homes have additional information on best ways to improve your score on their website here: https://blog.rexhomes.com/how-to-improve-your-credit-score-before-you-buy/