How Do I Improve My Credit Score to Buy a House?
First, You Need to See the Credit Report
When lenders begin the process of determining whether or not they will give you a loan, the first thing they do is analyze your credit payment habits. To help them with this analysis lenders order a detailed report of your credit payment history.
Learn strategic tips that may help increase your credit score, and, perhaps help you get the loan you need to buy your home.
How Do You Improve Your Credit Score?
There are five main things you can do now to improve your credit score.
Pay Your Bills on Time. The longer you pay your bills on time, the more your credit score improves.
Pay Down Your Balances. Pay down and keep your balances low on credit cards and other revolving credit. In fact, this is the most effective way to improve your credit score.
Only Apply for New Credit IF You Need It. Don’t apply for a whole bunch of credit cards just to have them available. All of those credit cards are considered “available” debt. In addition, debt is not a good thing to have when you need to prove that you have the income to manage your current outstanding debt, in addition to the new debt or loan for which you are applying.
Do Not Close Unused Credit Cards. Just as you don’t want to go out and apply for many new credit cards, you actually don’t want to close unused credit cards as a short-term strategy. Unbelievably, this could actually lower your score. Why? Because, a portion of your credit score is determined by the length of time you have had and maintained your credit card. If you close a credit card that you have maintained a low to zero balance over a period of, say, 10 years, then you may end up losing some points. Longevity weighs significantly in the credit score model. Longevity shows the lender that you are able to manage debt over a long period of time. Most home loans are for 30 to 40 years, so if you are able to maintain credit card debt for 5, 10, 15 or more years, then the lender may feel confident that you can also maintain a mortgage for, say 30 years.
Check Your Credit Score on a Regular Basis. A diligent thing you can do to maintain your credit score is to check your credit report on a regular basis. There may be something on your report which is reported in error, plus, there is a lot of identity theft going on these days and it takes time to sort through it all. You don’t want to be in the process of buying a house only to have the process slowed down because of incorrect information on your credit report.
What Makes Your Credit Score Worse?
What makes your credit score worse is late payments. Just simply paying your bills late, even one time, will bring your score down. Some people say, “I pay my bill late, but, I pay it!” Well, having a series of late payments is just as bad as missing payments. Lenders look at that as, “Not paid as agreed.” In other words, if you agreed to have your payment to the lender by the first of every month, but you actually make the payment on the 31st day of the month, then, you have not paid as agreed. Naturally, not making a payment at all is a bad thing, too. And, worse is when your account is sent to a collection agency or if there is a judgment against you that you didn’t pay or even worse than that - a bankruptcy.
When lenders see negative entries on your credit report they automatically assume that if you don’t pay other creditors on time, you may not pay them on time either. So, it does make them hesitate a little when it comes time to loan money to someone with a questionable payment history.
It Takes Time to Improve Your Credit Score
Even though you have the ability to correct the information reported on your credit report, reversing or correcting errors can take between 30 to 60 days or longer before the information is reported correctly and your credit score is adjusted accordingly. The message I want to relay here is – start now! Even if you are not ready to buy a house or refinance, make a habit of looking at your credit report at least once a year to keep up on the information that is reported on your credit report. That way, if something negative does appear, you can take care of it before it becomes an item that threatens your ability to get a loan.
How Do You Find Out About Your Credit Score?
You can obtain your credit score from many sources on the internet. Some places are free and some charge a small fee. When you go to the web sites, you’ll know up front which are which. Here are some web sites you may want to try for starters.
(Note: A fee may be charged)
Hope is Nearer Than You Think
No matter what your credit history looks like now, even if you have derogatory entries on your credit report, such as collections and bankruptcies, you may still be able to get a loan. It all comes down to what your credit score is and how long ago the derogatory situation occurred. The best thing you can do is to find out where you stand right now. So, when the time comes that you need a loan, you’ll be closer to being able to buy the home of your dreams.
MarleneB, a real estate broker, has been a licensed REALTOR® since 1989 - retired from active sales, shares knowledge and experience for buyers, sellers, and real estate agents.
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