Your credit score is of critical importance in your home-buying experience. It is by this metric that potential lenders will determine the amount they are willing to award you in home loans (if any at all!). At each stage of your home-buying journey, you must monitor and improve your credit score consistently, and refine it to expand your borrowing opportunities. To improve your credit before settling on a purchasing decision, follow these five tips below.
1. Review Your Credit Report And Dispute Any Errors
One of the first things you must do when repairing your credit for a new home is to check your report as it stands presently. This will give you a good starting point on which to build your financial health. When you take a look at your report, it is highly likely that you’ll find outdated or inaccurate information. Have the appropriate credit bureau remove these errors, as they could be potentially holding you back from borrowing opportunities.
2. Start Whittling Away at Your Debts
Your debt-to-income ratio is a crucial aspect that determines your borrowing eligibility. If lenders feel that your debt-to-income ratio is too high (meaning that too much of your monthly income is dedicated to loan repayments), then you will have a hard time getting approved for a mortgage. Start paying down your debts, even it’s just a little bit at a time. Lenders will see that you are actively repaying your debts, and that will do wonders for your eligibility!
3. Make Your Payments on Time
On-time payments influence 35% of your credit score. That is quite a bit! Since your punctuality with paying bills plays such a significant role in determining your trustworthiness as a borrower, it’s best you practice timely payments as often as possible. As you start to reduce your debt-to-income ratio, it’s best to set up automatic payments if possible. This will ensure that you don’t have any 30, 60, or 90-day late marks on your report (which can remove up to 100 points from your score!).
4. Do Not Open Any New Credit Accounts
Although diversity in your accounts can be beneficial for your credit report, opening up new lines of credit unnecessarily can result in devastating consequences for your score and borrowing eligibility. Opening up a new account means that you’ll ultimately owe more in debt, which accounts for 30% of your score. Plus, borrowing even more money while you’re supposed to be reducing what you owe will look quite bad to lenders. It’s best to hold off any new credit applications until you’ve already moved into the new house.
5. Cut Back on Spending
A healthy threshold for credit spending is 30% or below. Anything more than that is excessive in the eyes of lenders. Even if you have multiple credit cards, it’s best to keep them all under 30%, rather than maxing out only one. If you’re above that on any of your accounts, start cutting back on your spending right away and pay it down.
As you improve your credit score for the new home purchase, get in touch with a mortgage professional. They will advise you every step of the way and alert you to the most pressing matters with your credit score. Contact a mortgage professional today to get started in improving your score.