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December 9, 2023

Quick Steps to Improve Your Credit Score Before You Buy a Home

Market uncertainty is a major challenge for the housing market. However, savvy buyers on the lookout for new homes still have an opportunity to buy a home if they have all their financial documents in order and are swift in beating the competition. If you want to secure the home of your dreams, improving your credit score should be on the top of your list. Thankfully, there are a few steps you can take to instantly enhance this process.

Importance of A Good Credit Score

An excellent credit score is like a golden ticket that can get you low-interest rates and make a substantial difference in your monthly payments. Most home mortgage lenders consider your credit score before approving your mortgage. Hence, it is recommended to have a healthy credit score between 740-799, or an exceptional score of 800+ that demonstrates to the lenders that you are a good borrower and have the ability to pay back.

5 Steps That Can Help You Improve Your Credit Score

Now that we know the importance of a good credit score, here are a few steps that can help you reach an excellent credit score and prepare you when you apply for a mortgage.

  1. Check for any errors on your credit report

Incorrect accounts, unauthorized credit checks, inaccurate or fraudulent accounts, outdated information and incorrect payment status can take a toll on your credit score and you may end up having to pay higher interest rates. It is suggested to get a copy of your credit report through a credit bureau and file a formal dispute if you find any errors in your report.

  1. Pay off your debt and credit portfolio

About 30% of your credit score is dependent on your cumulative credit limit and credit utilization. You can boost your score by paying off your debt and having a mix of credit to your name. If you have over 25% of your available credit in debt, aim at getting it down to less than 10% and work toward paying off your loans rather than opening new credit cards.

  1. Pay your bills on time

Your bill payment history accounts for 35% of the credit score and if any bills have gone unpaid, it can take a serious toll on your credit by almost 100 points. It is best to set up automatic bill payments and keep a check on your bills to pay them in full within the 30-day period.

  1. Minimize credit card spending

You cannot predict the exact date when the lender will pull out your credit report. Hence, in the months leading to your loan application, pay off a major portion of your debt and keep your balances low.

  1. Think before opening a new credit account

Opening multiple credit accounts in a short period to increase your credit line is a big red flag to lenders as it shows that you are too dependent on credit. Hold off on applying for new credit accounts and taking out any large personal loans before you apply for your home loan.

How Can A Mortgage Professional Assist You?

If you are ready to buy a house, contact a mortgage professional who will review your credit score, provide you with financial recommendations, and assist you in finding the best prices based on your score.

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