A common question we hear from many prospective home buyers is: “Will my credit score be good enough to help me qualify for a home loan?” Your credit score shows lenders that you can make payments on time and that you have a history of doing just that. And while it isn’t the only factor that lenders use in determining whether or not you’ll qualify, it is important.
Unfortunately, credit cannot be repaired overnight – it takes time. To improve your credit score, it’s essential to take the necessary steps to review your financial history and be diligent with paying your bills on time.
Take a look at the following steps you can take to improve your credit score*:
1. Review Your Credit Report
Make sure you’re reviewing your credit report on a regular basis. In doing so, you’ll be able to check for any errors or omissions and get them corrected promptly. Reviewing your credit report is an excellent opportunity to find out what your current credit score is and whether there is room for improvement.
By law, you are entitled to a free copy of your credit report once a year from each nationwide credit reporting company. These agencies are FICO, TransUnion, Equifax, and Experian. Order your free annual credit report by visiting AnnualCreditReport.com or call 877.322.8228.
2. Limit Credit Line Applications
Having established credit lines is a good thing. However, the type of credit you have matters. Too many credit cards can hurt your credit score. Keep that in mind when Target is offering you a discounted purchase when you open a new credit card!
With that being said, make sure you don’t immediately close any existing accounts, especially if they have a high balance. Instead, if you don’t plan to use a particular line of credit in the future, take the following steps: pay the line of credit off in full, take it out of your wallet, and store it in a safe place.
3. Double Check Limits and Balances
When your balance is too close to your credit limit, it can have a negative impact on your credit score. When it comes to credit cards, a good rule of thumb is to keep your balances at about 30% of your limit. If you see your balance getting too high, consider pre-paying some of it ahead of time.
4. Clear Up Collection Accounts
Make paying off any bills that have gone to collections a top priority. Set up payment plans to pay off your oldest debts first. Clear off any collections accounts from your credit report, and in time, you’ll see a vast improvement in your score.
5. Pay Your Bills On Time
Payment history can have a significant impact on your overall credit score. If you’ve missed a due date but pay before 30 days have elapsed, the payment will not be reported as late. Late payments are reported to credit bureaus when a payment is made 30 or more days after the due date. If payment is still not made more than 60 days after the due date, it can reflect even more negatively on your score.
Even if you’ve missed a due date, don’t wait until the next payment is due. Pay the bill as soon as you’ve realized the due date has passed.
6. Establish Credit History
Having an established credit history is a critical component of your overall score. Offset a short credit history by keeping your balances reasonably low and paying your bills on time.
Have more questions about how your credit score can impact your qualification for a mortgage? Give me a call today! I’m happy to sit down and assess your financial situation and goals as they pertain to homeownership.
LLOYD WHITE, JR.
Senior Mortgage Banker • NMLS 119465
- Buying a Home? Why Knowing Your Credit Score Matters
- Federal Trade Commission: Building a Better Credit Report
- HUD Approved Housing Counseling Agencies
*Summit Mortgage Corporation is not a credit repair company. Contact appropriate credit bureaus directly to review or dispute any inaccurate information.