9 Tips for Improving Your Credit Before Buying a Home

9 Tips for Improving Your Credit Before Buying a Home

Are you ready to delve into homeownership?

Many individuals dream of owning their own home but fear that their credit will get in the way of getting a mortgage approval

Don’t let your credit score scare you away from owning a home! With the right strategy, you can quickly improve your credit in order to make homeowning a reality.

If your credit score seems to be slipping to the low end of the scale, learn how credit scores work and follow these tips to boost your rating so you can fulfill your dreams of owning a home:

Credit Card Scores and Mortgage Approvals

Before you consider how your credit score will affect buying a home, it’s important to understand how credit scores work. Your credit score indicates your “creditworthiness” to lenders and mortgage companies will use your credit score to determine if you are a safe investment.

Credit scores are calculated according to five categories that add up to 100%: payment history (35%), debt percentage (30%), new accounts (10%), length of credit history (15%), and the types of credit accounts you have (10%). 

The highest score possible is 850 with scores under 600 considered to be risky. However, credit scores of 720 or higher are an indication that you are a solid borrower.

Your credit score will affect how likely you are to get a mortgage as well as the interest rate.

Mortgage lenders each have different guidelines when it comes to minimum credit scores – where some lenders may approve you with a score of 600, others may look for a score of 640 or better.

The type of mortgage is important to consider as well, with different options available depending on your circumstances. The best way to find out which mortgage product is right for you is to speak with a professional mortgage lender.

Otherwise, here are some tips to help you improve your credit before buying a house:

1. Keep an Eye on Your Credit Score

Before you get into the process of improving your credit score, it’s important to know exactly where you stand.

Services such as Credit Karma allow you to check in on your credit score, total debt percentage, number of open accounts, credit history, and recent credit injuries.

Also, check with your bank’s online app to see if they offer quick credit checks as well.

2. Pay Down Your Debts

Instead of throwing money at your debts without a plan, start with paying off or lowering the debts with a smaller balance. This will help improve your income-to-debt ratio.

You should also focus on paying down debts with higher interest rates. Not only will this help improve your credit score but will also save you money in the long run. 

3. Don’t Add Any New Debts

While you are working to pay down your existing debts, avoid adding any new debts to your credit profile.

Many people believe that opening new accounts will improve their credit score but doing so will trigger a credit inquiry. Too many credit inquiries can negatively impact your credit score.

Plus, as you’re trying to pay down debts, it is counter-productive to take on new ones. While emergencies certainly do happen, avoid opening unnecessary accounts for unnecessary purchases.

4. Pay Your Bills on Time

Man paying bills on laptop.

Debt is not the only financial factor taken into consideration when it comes to calculating your credit score. Credit bureaus look at your bill payments as well.

Simply paying your bills on time is one of the easiest ways to quickly improve your credit score!

If something should happen and you cannot make a bill payment on time, contact the company immediately. Many will work with you to figure out a payment plan and avoid a late payment on your account.

5. Dispute Inaccuracies in Your Credit Report

Credit reports are not always accurate so it’s important to keep a close eye on yours to see if there are any discrepancies that need to be corrected.

Inaccuracies can indicate identity theft but can also be caused by outstanding debts appearing to be unpaid when they are.

You can dispute credit report errors by contacting each of the three credit bureaus: Transunion, Experian, and Equifax. 

6. Don’t Close Your Older Credit Card Accounts

Remember that the length of your credit history impacts your score, so don’t close off old debts just because they are paid off. 

Use older credit accounts to pay for small, regular purchases and quickly pay off the balance. This will help you avoid having these accounts closed due to inactivity.

You want to keep these older accounts in good standing in order to improve your credit before buying a home.

7. Increase Your Credit Limit

This may seem counter-intuitive since one of the goals of improving your credit score is to pay off your debts.

However, increasing your credit limit will help you improve your credit utilization ratio, which is how much credit you’ve used compared to how much credit you have available.

Lowering this ratio, by borrowing a small amount off a higher-limit credit account, looks good on your credit score.

8. Get Added as an Authorized User on Someone Else’s Credit

If you have a close friend or family member with excellent credit, you can improve your credit score by having yourself adding to their account as an authorized user.

This way, their good debt is reported on your credit report and can raise your score a bit higher – and you don’t even have to use their credit!

Just keep in mind that your friend or family member’s activity can affect you negatively as well. You want to make sure this individual remains in good standing with their credit.

9. Contact a Professional for Help

If all else fails, you can always contact a professional to help you improve your credit score. There are experts out there who exclusively help individuals do just this.

While our expert team of mortgage lenders at Caplink cannot directly improve your credit score, we are more than happy to steer you in the right direction!

We want to support you in achieving your dream of owning a home by finding the perfect mortgage product to meet your unique needs.

Let’s chat today!