Buying a home is a process that most of the time has months or even years of planing. When getting a loan for the purchase an important factor is the credit score. This is a number that tells others about how we deal with debt and how reliable are we with our finances.
Having a low credit score can cause some of the following negative effects in our buying power:
• Higher interest rates
• More time needed to approve
• Require more proof of income
• Need to have a bigger down payment
• Option of no financing at all
Start by finding out what is your credit score. There are some portals like creditkarma.com or even your bank portal might have an option to provide you with your credit score. If you see that your credit needs to be improved, start as soon as possible
Fees- According to the federal government, you are allowed 3 free credit checks a year. You can get this information online, but beware, many sites (not federally ran) may try to charge you for this report. Don’t fall victim to their trap!
Balance- While knowing your score might be the first step, but this tip is easily the most important. Paying down what balances you have on all open credit cards is the biggest step in getting a better credit score. It is okay to use one of your open cards, but always make sure to keep your monthly balances as low as possible.
Pay On Time- If you really want to boost your score, this is the best way to do it! While it may be easier said than done, it is important to make sure all payments to every credit card and loan you have are done on time.
Card Usage- As we said above, pay off all your credit cards…But don’t close any of them until you have applied for your mortgage. Sometimes closing cards can have a slightly negative effect on your credit. Paying off cards but keeping the line of credit open can make your mortgage chances better
Open new accounts- opening a new credit card can improve your credit score! If you don't make any new purchases on your credit cards, including the new one, your overall credit utilization will drop and your credit score could increase.
Big Buys- Don’t make any other huge purchases before you apply for a home loan. This includes going on a large vacation, buying a car or any other large ticket item. Large charges can make your credit look weak.
Planning- Changing your credit score is not something you can do overnight. Credit repair can take months to repair. So be patient and plan ahead!