We all know that credit is incredibly important when you’re looking to buy a home, but did you know there are things you can do to help your credit get stronger and look better for prospective lenders? It’s true! While there are certain things about your credit score that may seem out of control, other aspects of it are well within your influence, and can help support you as you’re applying for – and securing – your mortgage.
The first step to take is the easiest one: obtaining your credit report. This is what lenders use to determine your loan-paying capabilities, as it shows them your capability for handling debts. In addition to looking at how many accounts you currently have, they also look at how timely you are at paying your bills, and whether you have any delinquent accounts, bankruptcies or anything else that could affect your ability to pay your loan.
You can get your credit report from the three bureaus that manage credit: Experian, Equifax and TransUnion. Read through your report and make sure that everything is correct, as inaccuracies can affect your credit score. And if you find a mistake? File a dispute with whichever of the three bureaus reports the error (or all three, if all three of them do), either online or by certified letter. The bureau will then work to rectify the mistake within a 30-day timeframe.
Another thing to consider in helping your credit get stronger: paying off your credit card balances. If you have a lot of cards with high balances, lenders will be reluctant to offer a loan to you. Before you start looking for pre-approval, it’s wise to pay down your debts by paying more than your minimum payments every month. Doing this will help lower your debt-to-income ratio, relieve your interest charges, raise your credit score and help lenders see you as someone who can manage their debts. If you wind up paying off one or more cards, consider leaving the account open.– Closing too many accounts can actually hurt your credit score, as it shortens your credit history. If you really want to close out an account, wait until after you’ve been approved for your loan.
While you’re managing your credit cards, make sure you don’t apply for any new credit. It’s tempting to open new accounts – after all, you’re going to have a new house that needs new furnishings, new décor, maybe some new paint… but every time you apply for a new line of credit, it registers on your credit report and can lower your score. Too many inquires on your report can look bad to lenders, so wait until after you secure your mortgage to open that account at that furniture store.
Lastly, as you’re comparing and contrasting mortgage companies and their rates, bear in mind that your credit report turns over every month – which means every credit inquiry you make as you shop for a loan will show up on your report, and that can lower your score. Do research on companies and rates before you offer up your credit information, as it will help you in deciding who you really want to work with – and then you can select from there without creating too much impact on your credit score.
Everything you can do to make yourself an attractive borrower helps in the long run, but managing your credit is probably the most important. Use these simple tricks.