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How to Improve Your Credit Score Before Buying a Home

Key Takeaways

  • Credit scores don’t improve overnight; give yourself enough time.
  • Good habits include checking your credit reports annually, making on-time payments, and having a good credit mix.
  • Bad habits include using more than 30% of your credit limit and opening too many new accounts.

If you’re shopping for a home or getting ready to apply for a mortgage loan, you have plenty on your mind. Don’t forget to add “improve my credit score” to the to-do list.

Raising your credit score can make a big difference in whether your mortgage gets approved and whether you qualify for the best interest rates.

Generally speaking, a good credit score is anything over 670; if your score is 740 or above, even better.

No matter what you do, your credit score won’t rise substantially overnight. That’s why it’s important to start the credit-building process early on so your credit is in good standing when you start shopping for a mortgage.

Here are some pointers to help move your credit in the right direction.

What you should do

If your score needs improvement, try these tips before applying for a mortgage:

  • Review your credit report for accuracy: Order free copies of your credit report every 12 months. If you spot errors, work with the creditor and the credit bureaus to correct them.

  • Be credit smart: Borrowing and paying off your balance is good for your credit score. One tactic to try: Save money for a medium-to-large purchase, buy it on a credit card and then use those savings to pay off the balance right away.

  • Pay on time, every time: This is a major factor in determining your score, and it applies not only to your credit card bills, but also rent, utilities, your cell phone, and other payments. If you do miss a payment, catch up as soon as possible. Scheduling automatic payments can help you stay on track.

  • Mix it up: Using a variety of credit — including revolving accounts (like credit cards) and installment loans (such as a car loan) — can help boost your score. But don’t open a new credit account unless you actually need it.

  • Manage your total debt: Try to minimize the number and amount of balances you carry. When possible, pay off balances in full every month. Otherwise, work to keep credit utilization — the total amount you owe compared to your total credit limit — under 30%. And try to maintain a debt-to-income ratio (how much you owe compared to how much you earn) of 35% or less.

What you should not do

There are also actions you should not take before applying for a mortgage because they could hurt your credit score. For instance:

  • Don’t make any major credit purchases that would push your credit utilization over 30%.

  • Don’t open several new accounts in a short time.

In fact, it’s best to avoid opening or closing credit accounts before applying for a mortgage. Your credit score is partly based on the age of your accounts. Either opening a new account or closing a long-standing one could lower the average age of your credit history.

What to remember

Buying a home is a major purchase, and even the slightest lowering of your interest rate could save you thousands over the life of your mortgage. That’s why it’s critical to get your credit score in good shape before applying for a mortgage. Follow the above measures to ensure that your credit is an asset rather than a detractor.

More information

We are committed to helping you reach your potential by providing personalized solutions that can help you reach your goals. To learn more about mortgage solutions, please call 1-888-514-2300, visit us online, or find a Citizens Bank Loan Officer.

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