One of the most important factors lenders consider when you apply for a mortgage is your credit score. A higher score can help you obtain better interest rates and loan terms, in the end saving you thousands of dollars over the life of your loan. If you’re planning on buying a home, boosting your credit score before applying for a mortgage is a savvy financial move. Here we will go over how to boost your credit score and grow your chances of approval:
1. Check Credit Report for Errors
Request a free copy of your credit report, before making any changes, from all three major credit bureaus: Equifax, Experian, and TransUnion. Review any errors or outdated information, such as incorrect late payments or accounts that don’t belong. Disputing and correcting errors can immediately up your score.
2. Pay Bills on Schedule
Payment history makes up around 35% of your credit score, so paying bills on time is essential. Set up automatic payments or reminders, if you have to, to ensure you never miss a due date. It's okay if you’ve missed payments in the past, but going forward focus on making all future payments punctually to demonstrate reliability to any potential lenders.
3. Bring Down Credit Card Balances
The amount of credit you are using compared to your available credit, known as credit utilization, makes up around 30% of a score. Try to keep your credit card balances below 30% of your credit limit. Focusing on paying down high-interest debt is a good way to improve your score over time.
4. Stop Opening New Credit Accounts
Opening numerous new credit accounts over a short period of time can lower your score as well. Hard inquiries happen for each application, resulting in temporarily reducing your score. If you are wanting to buy a home soon, avoid taking on any new credit cards or loans.
5. Let Old Accounts Remain Open
Credit history length accounts for 15% of your score, so if you have older credit cards or accounts, keep them open. Even if you’re not using them, the longer the credit history, the better it will look to lenders.
6. Consider a Secured Credit Card
If your credit score is low or you have a limited credit history, a secured credit card can be a good option. These cards require a deposit as collateral but can help you build or rebuild your credit if used responsibly.
7. Collaborate with a Credit Counselor
Still struggling to improve your credit score? Look into working with a certified credit counselor. A counselor can help you create a debt management plan and offer you advice on the most trusted ways to rebuild credit.
Though it will take some time and effort, improving your credit score is one of the best ways to position yourself for a successful home purchase. Begin by checking your credit report, paying down your debts, and focusing on consistent, timely payments. With patience and discipline, you can amplify your credit score and expand your chances of acquiring a mortgage with favorable terms. Any questions? Contact Morton's Realty in Greenwood today and allow our experts to guide you in your credit score improvement and home buying journey!