Purchasing a home can be a daunting process but there is always an element of added stress if you know your credit score isn’t quite where it should be. Lenders providing your new home loan can offer the lowest interest rate for those with a higher credit score. Even just a few points can mean the difference in thousands of dollars saved or spent on your new home.
Pull Your Report
The first step is to breathe… and pull your credit report. It might be stressful, but go through the entire report to be sure there are no errors or inconsistencies. Any late payments that were actually made on time, debts you paid off that show as outstanding, or instances of fraud should immediately be reported so that it can be removed from your report to increase your score.
Pay Down Debt
If you have outstanding balances on any of your credit cards, now is the time to pay down that debt. Your total debt compared to your available credit will be a determining factor of your score. It’s best to start with the credit cards with the highest total balance because any balance over 90% of the card’s limit will be an even bigger red flag for the credit bureau.
Don’t Close Accounts
It may feel natural to close any excess credit cards as soon as you’ve paid them off but you should think twice about this. The age of your accounts is also factored into your credit score. The longer you’ve had accounts open, the more positively this is viewed by the credit bureau. If you have several cards that have annual fees that you want to reduce, just be sure to keep the oldest accounts open and eliminate the more recently opened ones.
Pay Your Bills On Time
When you’re in the process of improving your credit score this is the absolute most important time to be sure you’re paying all your bills on time. Any delinquent payments will have a major negative impact on your credit score. Confirm any previous delinquent payments and if any of them seem to be made in error contact the credit bureau to see if you can have the delinquent payment removed.
Minimize the Amount of New Accounts Opened
While you may think opening new accounts or applying for additional credit cards will help with your debt to credit ratio, your credit report will be reflect any inquiries that occur when opening a new account. If you have an excess amount of recent inquiries, your score will go down. Try to work with what you already have and focus on paying down debt as opposed to opening more lines of credit to improve your debt to credit ratio.
With a little focus and hard work, you’ll have your debt paid off and your credit score improved in no time. Take on some extra projects to pay off the debt. Perhaps you can have a garage sale or do some freelance work on the side. In the long run a high credit score will mean a lower interest rate and a lot less money spent on your new home. Good luck!
