Before you’re able to purchase a brand-new house, you must take years in advance to prepare your finances and your credit score. Your credit score is integral to your ability to secure the funding you need to afford the home of your dreams. If your score is too low and you neglect to repair it, you risk losing lending opportunities, essentially forfeiting your buying power. If you are looking to boost your chances of closing on the home you’ve always wanted, use the tips below to start repairing your credit early in the home buying process.
Understand What Dictates Your Score
You can’t effectively improve your score without knowing precisely what you need to work on. Your credit score is made up of the following components:
- Payment history. This accounts for 35% of your score.
- Balances owed (30%)
- Age of your credit profile (15%)
- New lines of credit (10%)
- Mixture of credit lines in your name (10%)
Tailor your credit improvement efforts according to these factors.
Pay Down Your Balances
Whether it’s an auto loan or an accumulation of credit card debt, paying down your balances can do wonders for your score. As you can see, your balances account for 30% of your score. So, even dedicating a few hundred dollars to your existing balances can earn you enough points to make a significant difference in your borrowing eligibility. Specifically, aim to get your credit cards below 30% utilization of your total balance. (Thirty percent is the threshold that lenders don’t want to see you cross.)
Make On-Time Payments
Your payment history – which includes the punctuality of your payments – is the most important part of your credit score, as it holds the largest percentage of influence at 35%. Many of us forget to pay bills every now and then, but you must be far more intentional in avoiding these mistakes when you’re buying a house. Set up automatic payments when possible to eliminate the possibility of missing a payment.
Remember than anything later than 30 days can be extremely detrimental to your score, even if your credit report’s other elements are in relatively good condition. Bills that are sent to a debt collector are much worse, and a glaring signal to lenders that they cannot trust you with borrowed funds. Get this aspect of your score squared away before attempting to apply for a mortgage.
Be Careful About Opening New Lines of Credit
Although this only accounts for 10% of your score, it still plays a critical role in your borrowing eligibility. If a potential lender sees that you have been opening up new credit cards or applying for brand-new loans just before requesting funding for a mortgage, they will question how wise you are with your money. This will signal to them that you are far too reliant on credit, and they will likely be unwilling to approve your application.
Once you’ve taken these steps to improve your score, review your report and ensure that there is no false or inaccurate information, since erroneous reports often disrupt the homebuying process. You are also strongly encouraged to get the advice of a mortgage professional. They’ll not only help you to adhere to the tips listed here but support your homebuying ability within the boundaries of your credit eligibility. Get in touch with a mortgage professional today to begin repairing your credit.