The first thing you should do if you are considering buying a home: Check your credit score.
It may not be the first thing you think of, but it’s important. A credit score is an integral part of determining the loan amount you will qualify for and your interest. Mortgage lenders carefully consider credit scores when reviewing loan applications, and the better your score, the greater your chance of being approved.
We know everyone understands the basics of good credit: pay on time, don’t max out your cards, etc., so we’re going to focus on good habits and preventative measures to improve your score or keep it decent. (Psst: a bad score doesn’t necessarily mean you’re doomed to a bad mortgage rate. Talk to a mortgage broker — they can help you uncover good rates.)
- Increase the limits of cards. It’s a sneaky way, but it works. If you have $1000 worth of debt and the card limit is $1500, that looks bad. But if you boost the limit to $5000, you still have the same amount of debt but are using a smaller percentage of the credit. Your ideal ‘credit utilization rate’ should be at or below 30% of the credit limit.
- Pay frequently. Making smaller payments frequently shows you still are paying off the debt! It can also help pare down the interest you owe.
- Check your score at least once per year. You’re entitled to one free credit report from the three main credit reporting agencies every 12 months. Be sure to carefully look over the reports for errors, and if there is one, immediately bring it to the attention of the credit bureaus. Experts caution that too many hard inquiries (opening a new card, buying a car, renting an apartment, etc.) by lenders or creditors throughout a year can harm your score.
- Leave old accounts open. Once you’ve paid off one account and you know there will soon be inquiries into your credit, leave that account open. It helps show lenders that you can be trusted to pay down your debt — just leave that account at a $0 balance for a while. (Plus, it can help your credit utilization rate!)
Want some more information on how to boost your credit score? Download our FREE Homebuyer’s Guide for more tips here!
And if you want to buy a property or refinance and are worried that your score might limit you, reach out to us. We’ve worked with hundreds of people with a wide variety of scores and can work with you to find the best rate for you. We’re always just a text, call, or email away.
