Buying a home is a big step with many factors that need to be considered. Location, loan programs, interest rates and credit scores are just a few of the considerations. Rising rent prices on homes and apartments are leading more and more families to explore the option of homeownership. When exploring mortgage options your credit score will play an important part in the entire process. The average FICO score for the nation, reported in April of 2016, was 699 but the higher your score is the better interest rate you can secure. Consider these five tips to help boost your credit score before exploring your mortgage options.
Monitor Your Credit Score
Many people know how important it is to check your credit score, but routine monitoring of your credit score is just as important. Identity theft is a real problem, but it’s only getting worse. Routine monitoring of your credit score can catch any problems so you can remedy them before they become large problems. Routine monitoring can also help you catch errors that could affect your credit score. Removing these errors will keep them from reflecting poorly on your credit report.
Paying Down Debts
Everyone knows how important it is to pay your monthly bills on time each month, but sometimes paying extra will help boost your credit score. Since a higher credit score can help determine mortgage rates consider which debts you can start paying down. Mortgage lenders like to see that you have available credit that you are not using. By paying down your debts your credit utilization will be lower. Since credit utilization accounts for around 30% of your credit score this simple step can increase your credit score after just a few months.
New Credit Cards
This tip may sound confusing, but there are actually perks to opening a new credit card. Your available credit will be increased, as discussed above, which is a perk in itself. Depending on what types of open accounts you currently have, opening a new credit card account will show that you have a variety of accounts. Mortgage lenders and other lenders like to see that you can use a variety of credit accounts responsibly. Having a car loan, and a credit card will show variety and responsibility helping to boost that credit score.
Don’t Close those Accounts
It is true that when looking for home loans mortgage lenders do not want to see a large amount of open credit on your report, but that doesn’t mean you should go closing those accounts. Closing an account not only reduces the amount of available credit you have available, but it also hurts your credit score. If you close a credit card account with $1,000 available credit, then not only do you no longer have this available credit, which mortgage lenders like to see, but your credit utilization has now gone up. Doing this can hurt your credit score in two ways, so it’s best to avoid closing any account when exploring mortgage options.
Credit Limit Increases
Earlier it was discussed that the more available credit you had the better, well there’s a way you can increase that available credit. Many times, credit card companies will increase your credit limit after you have made so many payments on time. If you find that is not the case and you have not had a credit increase in quite some time, contact your credit card company and ask for a credit limit increase on your card. This serves two purposes. It will give you more available credit, which mortgage lenders like to see, but it will also lower your current credit utilization which is also a plus.
By utilizing these tips, you can help boost your credit score before you start your journey to homeownership. Knowing the key factors that play a part in your credit score will help you not only monitor it but also raise it. Mortgage lenders like seeing higher credit scores, and these tips can help get your score there.
