If you’re considering buying a home, then the first question you should be asking yourself is “How can I improve my credit score before purchasing?”. That’s because for most people, purchasing a house begins long before you apply for a mortgage. Since the day you began establishing credit, you’ve been building a profile that enables potential creditors, like mortgage companies, to decide whether you’re trustworthy enough to lend money.
It’s called your credit score, and it plays a crucial role in your ability to secure loans with favorable interest rates. Here, some helpful tips on improving yours in advance of applying for a mortgage.
Don’t ignore your credit report.
When it comes to keeping an eye on your credit, you’ve got options. Many major credit card companies now offer products that are easy to use and even send notifications to alert you when your score has changed. What’s more, you’re legally entitled to one free report from each of the three credit bureaus once a year. Getting access to these reports is the first and most critical step in boosting your score. The second is poring over the report with a fine-toothed comb, looking out not only for opportunities for improvement (such as late payments or high balances), but for mistakes and inaccuracies, which sadly are very common and do typically take time to fix.
Do pay each and every one of your bills on time.
This is perhaps the simplest action you can take to improve your score quickly, particularly if you’ve been slipping on payments already. To ensure you’re on solid footing move forward, get to the root of the problem. Are you always running behind on payments due to poor planning? Utilize auto-pay options, or set calendar alerts to remind you when bills are due. If cash flow is the issue, well, that problem will prove more complex to solve—but it’s not insurmountable. In this instance, consult with a trustworthy credit advisor, who can accurately assess your situation and recommend tactics for re-negotiating payment terms and amounts.
Do pay down your debts aggressively.
A good rule of thumb with regard to credit card balances? If you must carry them, keep them below 50% of the credit limit—debt-to-income ratio plays a huge role in the healthiness of your credit score. If you can manage to pay off large balances entirely, you will likely see an immediate significant score change. Just as importantly, you’ll save money on interest and fees over time, which is why it’s wise to prioritize debt payment over savings. However …
Don’t close accounts when they’re paid off!
The notion of paying off a credit card and then closing the account certainly feels logical, but if you’re preparing to apply for home financing, it’s not advisable. As previously mentioned, debt-to-income ratio—that is, how much money you owe versus how much you bring in annually—is a major factor used to determine your credit worthiness. Closing accounts is a surefire way to move that ratio in the wrong direction and lower your credit score.
Do plan ahead.
Everyone’s situation is different, so it’s nearly impossible to predict how long it will actually take to move from one credit tier to the next—but a universal truth is that significant change seldom happens overnight or anywhere close. It’s ideal to develop a credit improvement plan—and to come up with concrete tactics for execution—a full year in advance of applying for home mortgages.
For more information about how you can prepare for your home purchase, chat with a First Team agent. Your credit score is just one of the ducks you need to get in a row before you make a real estate purchase.
