How to improve your credit score before buying a home

How to improve your credit score before buying a home

If you’re shopping for a home and getting ready to apply for a mortgage loan, you have plenty on your mind. A biggie? Applying for a loan (or pre-qualifying), which is often a first step in the process — even before you start looking. A mortgage is a must have for most of us. In fact, 65% of people wanting to own a home take out a mortgage to buy it.

To get a mortgage, you’ll need excellent credit if you are obtaining your loan from a private lender. So don’t forget to add “improve my credit score” to your to-do list. Increasing your score can make a big difference in getting your mortgage approved and determine if 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. But if your credit score doesn’t meet the “good” threshold, you’ve got some work to do. Your credit score won’t rise overnight, so plan accordingly. According to Experian, there's no exact measure of how long you'll wait to see results on your credit score. So it’s important to check your credit right away and, if you need to, start the credit-building process, so your credit is in good standing when you start shopping around for a mortgage. If you already meet the criteria for borrowing, be sure to keep tabs on your credit report. That way, you can address any fluctuations or errors that could affect your score.

Credit Score Repair

What to do

If your score needs fixing, 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. Be sure to be aware of your ratio of balances to available credit limit and to not take on too much debt. However, making on-time payments and keeping low utilization could keep your credit score in a good place.
• 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 to rent, utilities, your cell phone, and other expenses. If you miss a payment, be sure to catch up as soon as possible. One way to keep yourself on track is to schedule automatic payments with your financial institution if they offer that service.
• Use a variety of credit. This includes revolving accounts (like credit cards) and installment loans (such as an auto loan), which 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 amounts and the number of balances you carry. When possible, pay these off 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 of 35% or less. (DTI, or debt-to-income ratio, is how much you owe, compared to how much you earn.)

What not to 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 about fixing your credit score

Buying a home is a major purchase, and even the slightest lowering of your interest rate could save you thousands of dollars over the life of your mortgage. That’s why it’s critical to get your credit score in good shape before applying. If you consider the advice in this article, you can help ensure that your credit is an asset — rather than a detractor.

How Citizens can help you

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 888-514-2300, visit us online, or find a Citizens Loan Officer.

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