There are many factors that are taken into account to get approved for a mortgage, but one of the major factors involved is credit score. Before giving a person a loan to buy a home, creditors want to know how much risk is involved and the best way to measure the risk is by evaluating the consumer’s credit history. Typically, the higher the credit score the lower the risk.
It is important to note that improving and building credit is a continuous effort. There is no instant solution to fixing your credit as there is no instant solution to building your credit. It takes time! If you are looking to buy a home, but need to improve your credit to qualifyor guarantee a low interest rate, the fastest way to a higher score is keeping your debt-to-credit ratio low by paying down debt and disputing any negative information that may be on your credit report.There are five factors that can effect a consumer’s credit score: Payment history,outstanding debts,length of credit history, types of loans used, and amount of new credit.
Improve Payment History
One way to improve credit to buy a home is to pay bills on time. Late payments WILL negatively impact credit scores.If there are past due bills, pay them right away to avoid getting any negative hits to your credit report. Creditors should be contacted immediately if you are unable to make a payment in a timely manner. Some creditors can provide a payment arrangement that will keep the late notations out of the credit report. Once a late payment hits your report, it is not an easy task getting the negative item removed so avoid making late payments if possible.
Keep Debt Amount Low
A high debt to credit limit ratio will keep a consumer’s credit score low. That is why it is important to keep outstanding balances of the credit card low. It is also recommended to pay off debt, and not just move it around. It is also suggested not to close unused accounts because the zero balance can help with the overall credit score. Do notapply for new accounts while trying to improve your credit score because credit inquiries can negatively impact your overall score.
Length of Credit History
Credit accounts open for longer periods of time show lenders that you are a consistent, responsible borrower. Don’t close old accounts even if they are not actively being used to establish a longer credit history.You can’t control this factor of your credit report. However, what an individual can do to improve one’s credit before buying a house is not to open accounts in a short period. Adding credit accounts can be an indicator that the person is not handling their credit responsibly.
Manage New Credit Wisely
Credit scores can be reduced even if a person is just inquiring about opening accounts. Opening several accounts over time can lower your credit score.Creditors see this action as an indicator that the person is irresponsible with credit. If there is a need to get a loan, make sure to do all inquiries around the same time. People with previous credit problems should not open new accounts. Pay the loans on time and avoid maxing out the credit limits.
These are some of the things that can help home buyers improve their credit. Keep in mind that a closed account doesn’t remove it from the credit report. It might still be considered when determining the creditscore. Follow the tips above if you want to get a good rate on your home loan.
If you have any additional questions or want further clarification feel free to contact Ashley Novak at 424.333.5340 or ashley(at)ashleynovakre(dotted)com.