So you’re ready to buy a house, you’ve slowly saved funds for a down payment and are ready to sit down with your banker. During the initial pre-approval process when your credit score is checked, you find out it’s barely hitting the mark at 500. This qualifies you just barely on a loan with the highest interest rate available. Plus, you’ll have to buy mortgage insurance, which you hadn’t planned for.
Knowing your credit score and building it up as you prepare to buy a home will ensure the best interest rates and programs such as first-time homebuyers down payment assistance. Part of why your credit score is so important in the mortgage world provides the bank a ‘guess’ at your ability to repay a loan.
Wondering how to do this quickly and painlessly? It’s actually easier than you might think. First, before anything, be sure to track and monitor your credit score. This can be done through many banks and credit cards for no cost. If you don’t have access to a free monthly report, at the very least be sure to access your annual free report for all three credit companies from annualcreditreport.com.
Let’s look at four ways to improve your credit score for your home loan in a short amount of time:
- Ensure you are making payments on time. This is critical to your credit score. Late payments immediately affect your credit score and take time to turn around. Even worse, if you’ve neglected to pay a bill for so long it goes to a collection company, it can be a challenging situation to regain a good credit score.
- Spend money sparingly and pay down your credit cards. Since your credit score is also based on your debt to credit limit ratio, the higher your income-to-debt ratio will impact the rate you receive. If it’s over 30% it can also impact the types of mortgages you can receive.
- Long-term credit history is also important to your credit score. Ongoing history, even if short, can result in a better credit score if you pay on time. For example, use a credit card to pay your monthly utility bill then pay it off before any interest can be charged.
- Stop getting credit and charge accounts just because they are offered to you. One mistake many people make is applying for every credit card available. Too many inquiries into your credit history have a negative impact. Be selective and choose a small mix which may include an educational loan, credit card, and store-specific card.
If you are struggling to follow these steps, reach out for assistance! Some banks can assist you in debt consolidation or budgeting. There are also local libraries, housing, and credit agencies who provide free assistance and guidance, including classes and templates for budgeting, paying off debt and building your credit score.
If you’d like some additional advice, please CONTACT US TODAY to help you down the road to great rates for your mortgage loan.