8 Things to Do to Improve Your Credit Rating Before Buying A Home
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Having a good credit score is a key to finding a good mortgage loan. The best loans happen for those with credit scores over 760. This can easily be accomplished by paying your bills in a timely manner, keeping your credit balances low, and limiting the amount of credit you have open. If you do not currently have good credit but want to buy a house, here are eight things you can do to improve your credit rating over the course of a year.
#1: Order Your Current Credit Report
Everyone can get a free credit report each year from www.annualcreditreport.com.
#2: Find and Fix Any Mistakes
On average, 20% of those in the United States find errors on their credit reports. These can include such things as credit that is not yours, accounts that are not open, or payments that were not late and more. Follow the instructions on the report to file a mistake claim and keep all of your paperwork.
#3: Explain Anything Negative
Sometimes, the negative things on a report are real but there is an explanation, such as the loss of a job or an illness. You are permitted to make a statement explaining any bad spots on your credit report. This can help lenders decide to take a risk on you despite the issues.
#4: Make Timely Payments Each and Every Month
One of the best ways to improve your credit rating is to stop making any late payments. Studies show that making payments on time for a full year can increase your score by about 50 points. Missing a payment can decrease it by the same amount. Also, be sure to catch up any accounts that are behind. It is better to be late than for a bill to be unpaid.
#5: Limit Your Debt
High debt equals a lower credit score because they look at the amount of debt you have compared to your credit limit. As you pay down your debt, your ratio will be lower, which means your score will be higher. Most experts suggest never having a ratio higher than 30%.
#6: Don’t Just Make Minimum Payments
You can improve your credit rating by making more than the minimum payment each month. As little as $10 a month more can make a big difference.
#7: Don’t Close Accounts
Some people falsely assume that a good rate to improve your credit rating is to close accounts. The truth is that an older account is worth more to your credit than a new account. Keep your old accounts active by purchasing something small every quarter or so and then paying it off in full. Showing an active account with a good payment record is good for your score.
#8: Don’t Open New Accounts
If possible, do not open any new accounts for at least 6 months before purchasing a home. Opening a new account lowers your credit score until you can show that you know how to handle the new credit.
If you follow these eight tips, you can improve your credit score and be more able to find a home loan that works for you. If you have any questions about credit scores or other ways to make sure you are creditworthy for a lending institution, please feel free to contact us. We’d love to help.