How to Improve Your Credit Score
Want to know how to improve your credit score for a home mortgage application? Many would-be home buyers encounter difficulty obtaining a home mortgage due to their credit score. We’re here to help you with some tips to boost your credit score and ensure you get the lowest possible interest rate. We have compiled some of the most important and fastest tips to improve your credit score in preparation for submitting a home mortgage application. Maintaining a good credit score is critical for home financing including first mortgages, second mortgages or refinancing to get better interest rates.
I recall the confusion I experienced as a first-time homebuyer when I was purchasing my first home. I wish I had known the following information about credit scores and how to prepare for a mortgage application. As a real estate investor, I still face numerous challenges as lenders tend to be even more strict when applying for investment property loans. In this article, I will provide my top tips and tactics for building your credit score prior to applying for a home mortgage.
Mortgage Application Factors
Your mortgage lender will look at three primary factors when evaluating your home loan application. First is that you have a steady, verifiable source of income. Second, you have adequate funds to make a down payment without borrowing money. Third, you have a solid credit history that demonstrates your ability to pay over time. With this in mind, we will discuss our top tips to improve your credit score fast and ensure the best possible interest rate on your home mortgage.
Tips to Improve Your Credit Score Fast
Your credit score is a significant factor when it comes to securing a mortgage. It can determine whether you’re approved for the loan and the interest rates you’ll receive. Therefore, improving your credit score is crucial when you’re planning to apply for a mortgage. Here are some fast tips to help you improve your credit score:
1. Review Your Credit Reports
The first step in improving your credit score is to know exactly where you stand. You can obtain a free copy of your credit reports from each of the three major credit bureaus (Experian, Equifax, and TransUnion) once every 12 months at AnnualCreditReport.com. Review each report carefully and make sure all the information is correct.
2. Dispute Any Inaccurate Information
If you find any errors on your credit reports, it’s essential to dispute them as they may be negatively impacting your score. This can be done online through each credit bureau’s website. They are legally obligated to investigate the dispute within 30 days. If the information is found to be inaccurate, the bureau must correct it.
3. Pay Off Any Delinquent Accounts
Delinquent accounts, meaning those that are overdue, can significantly hurt your credit score. If you have any such accounts, pay them off as soon as possible. Remember, the longer a bill goes unpaid, the more it can damage your credit score.
4. Make On-Time Payments to Bury Past Delinquencies
Even if you’ve had delinquencies in the past, you can improve your credit score by making all your payments on time moving forward. The impact of past credit problems fades as time passes and as recent good payment patterns show up on your credit report.
5. Reduce Your Debt-to-Income Ratio
Your debt-to-income ratio is another key factor that lenders look at when considering your mortgage application. It’s the percentage of your gross monthly income that goes towards paying your debts. Reducing this ratio can help improve your credit score. You can do this by either increasing your income or reducing your debt.
6. Review Your FICO Score
While reviewing your credit reports, also check your FICO score. This score is used by many lenders to determine your creditworthiness. Knowing where your FICO score stands can give you a better idea of what loans you may qualify for. If your score is lower than you’d like, use the above tips to start improving it.
7. Be Mindful of Your Credit Utilization Ratio
The credit utilization ratio is the percentage of your available credit that you’re currently using. It’s a significant factor in calculating your credit score. Keeping your credit utilization ratio under 30% can positively impact your credit score. This means if you have a credit card with a limit of $10,000, try not to carry a balance of more than $3,000 at any given time.
8. Don’t Close Old Credit Accounts
The length of your credit history also affects your credit score. Even if you don’t use a credit card anymore, it’s usually a good idea to keep the account open as long as it’s not costing you unnecessary fees. Closing an account can lower your available credit and increase your credit utilization ratio.
9. Diversify Your Credit Mix
Lenders like to see a mix of credit types on your credit report. This can include credit cards, auto loans, mortgages, and student loans. While it’s not advisable to take on new debt just to diversify your credit, having more than one type of credit can be beneficial.
10. Limit Hard Inquiries
Whenever you apply for credit, a hard inquiry is recorded on your credit report, and it can lower your credit score. Multiple hard inquiries in a short period can cause more significant damage. If you’re shopping for a loan, try to do so within a short period to limit the impact of hard inquiries.
11. No New Debt!
Finally, try not to incur any new debt while you’re working on improving your credit score. This includes opening new credit cards or taking out new loans. Adding more debt will only make it harder to improve your credit score and could potentially make you less attractive to lenders.
Improving your credit score may take time and patience, but the benefits are worth it. A higher credit score can help you secure your mortgage at a lower interest rate. Start using these tips today to begin improving your credit score and increasing your chances of getting a great mortgage deal.