Helpful Tips for Improving My Credit Score to Qualify for a Mortgage
Having a good credit score will be one of the determining factors that mortgage lenders look at when you are applying for a loan. Not everyone knows what their credit score is right off the bat, and if your score needs some work, there are plenty of steps that you can take to improve it before you apply for a mortgage.
In this article, we will cover some helpful tips for improving your credit score so that you can qualify for a mortgage.
1. Look at Your Credit Score and Reports
The first step before applying for a mortgage is to acquire a copy of your credit report from major credit bureaus. Apart from reviewing your score(s), ensure that there are no outstanding mistakes, particularly regarding late payments or closed accounts. If there are errors in your report that look like they shouldn’t be there, make sure that you contact the bureau to make a dispute as soon as possible.
2. Make Sure to Pay All of Your Bills On Time
To improve your credit score so that you can qualify for a mortgage, we recommend making sure that all of your accounts are in good standing. Missing out on a payment can lower your credit score, and late payments will stay on your report for a handful of years. If you are currently late on a payment but are still within the grace period, contact the creditor to see if you can get things back on track. If you have a late payment that shows on your record, try your hardest to make payments on time in the future.
3. Cut Back on Credit Card Balances
A credit utilization ratio is the amount that you owe against your total available credit, and it accounts for more than 30% of your credit score. The lower the ratio is, the better. If your ratio is over 30%, we recommend you work to pay those balances down so you are back under the threshold.
4. Avoid New Credit Accounts Being Opened
Applying for a new credit card will affect your credit score. If you can, we recommend avoiding opening new credit card accounts or taking out more loans before applying for a mortgage. Follow this tip during the application and mortgage underwriting process. On the flip side, don’t close old accounts, as this can raise your utilization ratio and hurt your credit score.
5. Get Outside Help From a Responsible Credit User
If you are young or you are a first-time homebuyer, it is possible that you might not have a long credit history. One way to improve your credit is to buy a house. You can become an authorized user on either a parent’s or a relative’s credit card. The primary cardholder (the parent or relative) will continue to make the payments, but you will benefit from the positive payment history.
What Outside Factors Will Determine My FICO Score?
There are plenty of categories of your credit history that will inform your outstanding score. Things that affect your score more than others. Your FICO score can be determined by using a formula that looks like the following:
- Payment History On-Time: 35%
- Total Amount of Debt: 30%
- Length of Total Credit History: 15%
- All New Accounts: 10%
- Types of Credit Utilized: 10%
Conclusion
Regardless of strategies that you apply to improve your credit score, keep in mind that your credit score won’t change overnight. Once you have established a better credit habit, be consistent when making payments and keeping your debt low. With patience and time, you will have a great chance at securing the home of your dreams. Trust the real estate professionals at The Raymond International Group to guide you in finding and settling down in the home of your dreams in the many beautiful, luxury, elite neighborhoods that make up Miami, FL, today!