The higher your credit score, the better your mortgage options will be. If you are considering buying a home this year, or even further in the future, one of the best things you can do is make sure your credit is at its best. While some credit score benefitting tasks take time, there are actually quite a few things you could do today to instantly boost your credit score. Keep reading for some ideas to get you ready for homeownership.
Check Your Credit Report
Check Your Credit ReportThe first step is finding out where your credit stands today. Start by obtaining a copy of your credit report from each of the three major credit bureaus—Equifax, Experian, and TransUnion. Review the reports for accuracy, checking for any discrepancies, errors, or unauthorized accounts.This is a quick and easy task, free and available online.
Pay Bills on Time
The most impactful factor in your credit score is your payment history. Set up reminders or automatic payments to ensure all bills, including credit cards, loans, and utilities, are paid on time. Late payments can have a significant negative impact on your credit score.
Even if it means sometimes making a smaller or minimum payment rather than paying in full, an on time and consistent payment history is going to benefit you. We recommend you set automatic payments for the minimum, and a reminder to check in and pay the full balance as well whenever possible. This way, even if there is the rare lapse in time between when it is due and when you can pay in full, you won’t be damaging your credit in the process.
Improve Your Utilization Rate
The credit utilization rate on each of your accounts matters for a significant portion of your credit score. Utilization rate is the percentage of your credit limit that is being carried as a balance on the card. For example, a credit card with a $1,000 limit and a $500 balance on it has a 50% utilization rate. A lower ratio indicates responsible credit management. Strive to keep your balances below 30% of your credit limit, and ideally, aim for even lower utilization.
There are two ways to lower the utilization rate, improving your score.First, aim to lower your credit card balances. Second, reach out to your credit card companies and ask if they will increase your credit limit. Both of these will make a quick difference in your credit score because they immediately change your utilization rate.
Avoid Opening New Accounts
While establishing credit is important, avoid opening unnecessary credit accounts, especially in the months leading up to a home purchase. Multiple credit inquiries can temporarily lower your score. Focus on managing your existing credit responsibly and save any new credit accounts for after you close on the home. This includes new credit cards, buying furniture or appliances on credit, or applying for other loans.
Negotiate with Creditors
If you have outstanding debts or collections, consider negotiating with creditors to settle or arrange a payment plan. Some creditors may be willing to work with you, and settling an account can have a positive impact on your credit report.
Become an Authorized User
For some people, their low credit score is not an issue of poor credit history but simply not enough credit history. If you have a personal reputation for being responsible with money but don’t have a long credit history that allows it to show up in your score, consider asking a family member with excellent credit if you can be added as an authorized user on an account of theirs. This can potentially boost your credit score by including their positive payment history on your credit report. You don’t even have to have access to a credit card associated with the account, so they can help you out with little to no risk.
Address Errors to Boost Your Credit Score
Another thing you can do right away is find out if there are any errors on your credit report that are lowering your score unfairly. If you find errors on your credit report, dispute them with the respective credit bureau. Errors can include inaccuracies in account information, late payments erroneously reported, or accounts that don’t belong to you. It may take time to fully resolve the issues, but this will be worth your effort when it’s time to buy a home.
Ready to learn more about applying for a mortgage or getting financially ready to buy a home? We can help, so contact us any time.
