What Are The Best Ways To Improve A Credit Score?
One of the most important steps to buying a home is getting approved for a mortgage. One of the biggest factors as to whether a buyer gets approved for a mortgage are their credit scores. A buyers credit score impacts whether or not a buyer can obtain a home loan or not, first and foremost. In addition to the impact a buyers credit score has on their ability of getting a mortgage, it also can greatly impact the mortgage interest rate a buyer is able to receive.
What Are The Best Tips To Improve Your Credit Score In Order To Buy A Home?
12 Tips To Improve Your Credit Score In Order To Buy A Home
1.) Be Aware Of What Your Credit Scores Are
One of the more obvious tips to improve your credit score in order to buy a home is to be fully aware of what your credit scores are in the first place. It’s surprising the number of consumers who have no idea what their credit scores are.
The internet has made it extremely easy for consumers to monitor their credit scores. Free websites such as Credit Karma, allow consumers to continually monitor their credit scores.
Credit Karma, and many other websites, have apps that are compatible with most smart phones. These apps allow consumers to see their credit scores, total debt percentage, number of open accounts, credit history length, and number of recent credit inquiries.
12 Tips To Improve Your Credit Score In Order To Buy A Home
2.) Get Current On Any Delinquent Accounts
Just because someone misses a payment on a bill doesn’t mean that they should forget about it. Another tip for improving credit scores in order to buy a home is to get current on any delinquent accounts.
Catching up on late payments can increase a credit score relatively quickly once a credit report reflects the payment. Accounts with missing payments can destroy a buyers credit score so it’s important to stay current on all accounts!
3.) Dispute Any Errors On Your Credit Report
Yes, you’ve read that correctly, it’s very possible there can be errors on credit reports. It’s extremely important that if there are any errors on your credit report, you dispute them.
Disputing errors on a credit report can be done pretty easily nowadays, thanks to the internet and technology. Most creditors allow consumers to dispute errors online and the review process is much quicker nowadays when comparing to 10 years ago.
4.) Eliminate Disputed Accounts From Your Credit Report
While the internet has made most peoples lives easier, it also has increased the number of people who’re having their identities stolen. It’s not uncommon for a credit report to have accounts on them that’re actually not supposed to be on them.
If there are incorrect accounts on your credit report, it’s extremely important they’re removed. Removing disputed accounts from a credit report can improve a credit score relatively quickly.
The best way to get a disputed account removed from a credit report is to contact the creditor directly. It’s likely the creditor is going to request some type of proof, which in the case of identity theft, is some type of relating documentation.
5.) Pay Off or Lower Balances On Accounts With Small Balances
It’s pretty common for mortgage lenders to require home buyers who have average credit scores to pay off accounts with small balances. The reason mortgage lenders require home buyers to pay off accounts with small balances is because it changes their income to debt ratios. A buyers income to debt ratio is a factor that can have a large impact on mortgage pre-approvals.
If you’re unable to completely pay off accounts with small balances, lowering the balances can also go a long way with improving your credit score. It’s recommended that before paying off or lowering balances with small balances, you discuss with a mortgage lender to make sure you’re selecting the best accounts!
6.) Pay Off or Lower Balances On Accounts With High Interest Rates
It’s possible that paying off or lowering balances on accounts with small balances is not the best option but rather you target accounts with high interest rates! Paying off or lowering balances on accounts with high interest rates can be a great way to improve your credit scores.
Depending on the type of account, it’s feasible that you’re paying crazy amounts of interest on monthly bills. For example, some credit cards have interest rates of 20% or higher! Paying off or lowering the balances on these high interest accounts can potentially mean extra money each month to use towards a down payment on a home.
A great tip for saving for a down payment for a home is reducing monthly debts and not throwing away money each month to pay interest on bills is a great way to accomplish this!
7.) Pay Bills On Time
Paying bills on time may seem like a silly tip for improving a credit score because it’s so obvious, but it needs to be discussed. Another important tip for improving your credit scores is to pay all bills on time.
Since payment history is the category that is weighed the heaviest, simply making on time payments will go along way to improve your credit score. If making a payment on time is not feasible, it’s important that it’s not ignored!
Consumers who cannot make a payment for whatever reason just decide to not make a payment, which is a mistake. It’s suggested that if you’re unable to make an on time payment that you contact the company or organization to give them the heads up. Most companies will often work with consumers to setup a payment plan that is acceptable to both parties.
Seeing as credit history is one of the determining factors of credit scores, closing old accounts can actually do more harm than good. If you have old credit cards that haven’t been used in years, DO NOT close these accounts. By closing old accounts, you could be potentially hurting your credit history length.
For example, if you have an average credit history of 6 years and decide to close a credit account that’s 10 years old, you’re credit history is likely going to be less than 6 years after closing the 10 year old account. It’s important to realize that if you have old accounts, especially credit card accounts, that you use these accounts periodically to avoid them being closed by the company automatically.
9.) Don’t Keep Opening New Accounts
Many consumers believe that opening new accounts will improve their credit scores. Opening new accounts can actually do the complete opposite and can destroy a credit score, so to improve your credit score, don’t keep opening new accounts!
Why does opening new accounts hurt a credit score? One of the reasons opening new accounts can hurt a credit score is because when a new account is opened, generally, a credit inquiry is pulled. Too many credit inquiries can negatively impact a credit score.
10.) Open Secure Credit Lines, Only If Necessary
There are some circumstances when a potential home buyer doesn’t have enough credit lines showing on their credit reports. In this case, it maybe necessary to open a new credit account.
Mortgage lenders who’re working with potential borrowers who need to improve their credit scores by opening new credit lines will typically suggest secure lines of credit. A secured credit line is one which a borrower uses an asset as collateral to secure the account.
Mortgage lenders will often suggest secured credit cards to borrowers who don’t have enough established credit lines. Once a buyer obtains a secured credit card, lenders will suggest making small purchases each month and paying off the balance each month. By doing so, a borrower can improve their credit score by making on time payments and also is establishing a credit line in the process.
11.) Work On Your Credit Utilization Percentages
Credit utilization percentages impact consumer credit scores, so it’s vital you’re aware of your percentages. Generally speaking, consumers with credit utilization percentages of 10% or less are consider to have excellent ratios.
To improve your credit scores, it’s important that you always keep your credit utilization percentages in mind. If you’re planning on making a large purchase and have the option to use cash or a credit line, it’s suggested you use cash. Making a large purchase on a credit card can drastically change a borrowers credit utilization percentages.
12.) Contact A Professional To Help With Improving Your Credit Score
Discussing your financial circumstances with others is sometimes not the easiest task. The above 11 tips for improving credit scores in order to buy a home maybe exactly what you needed to learn about, but this may not be the case for everyone.
If you’re struggling to improve your credit scores, it maybe time to contact a professional to help improve your scores. There are businesses and organizations that are designed exclusively to help consumers to improve their credit scores.
Final Thoughts
Before getting started in the process of buying a home, understanding the importance of credit scores is huge. There are very few consumers who have a perfect 850 credit score, so being aware of these credit score improving tips above can go a long way. If you’re looking to buy a home in the near future and are trying to improve your credit scores, following these tips will definitely help! Contact me today to find out your credit score.