Your credit score is an indisputably critical element in the home-buying process. This seemingly inconsequential number partially dictates the loan options that will be available to you, along with their associated interest rates. Because of this, the score directly impacts your home-buying ability, working either to bolster your chances of success in finding your dream home or to tarnish them altogether. To ensure your credit score works in your favor, follow the guide below, provided by Rex Homes, on how to strengthen your score when preparing to buy a home.
- Dispute Any Errors Present on Your Report
A study by the Federal Trade Commission (FTC) revealed that approximately 5% of homeowners have been subjected to paying higher interest rates than they should be, due to the presence of errors on their credit report. The most common types of mistakes that contribute to such discrepancies include:
- Incorrect, duplicate, or fraudulent accounts
- Inaccurate reflections of payment statuses on certain accounts
- Outdated data
You are allowed a single free credit report each year by agencies such as Equifax and TransUnion. Review your report before you even begin house-hunting to give yourself ample time to dispute these errors and have them removed. Leaving them on your report can severely hurt your chances of qualifying for a suitable mortgage.
- Manage Your Payments Responsibly
Debt is easy to accumulate – so easy that you may not notice that you have borrowed thousands of dollars within only a few years. Remember that debt can take the form of student loans, a new vehicle, and revolving accounts like credit cards, so you may rack up several thousand dollars in your name relatively quickly. Even small changes, such as reducing your credit usage from 30% (the standard cut-off before your credit spending is considered “excessive”) down to 25%, can make a big difference.
It’s not enough to make these payments, though – you must ensure that they are made on time as well. Accumulating late notices – especially those exceeding 30 days – can inflict significant damage on your report and your dependability as a borrower. Remember that your payment history comprises 35% of your score, so this is a critical detail to keep in mind as you begin to whittle away at your debts!
- Be Very Careful About Opening New Lines of Credit
Lastly, you must remember that new credit accounts for approximately 10% of your credit score. In consideration of this, it is imperative that you remain wary of opening new lines of credit in the form of applying for loans or for new credit cards. Lenders perceive hasty or excessive borrowers as “risky,” as they appear to be too reliant on borrowed funds to maintain their finances. Restrict your credit usage only to times of absolute necessity, and you will remain a trustworthy borrower in potential lenders’ eyes.
Your credit score is a crucial part of your ability to purchase a brand-new home. Monitoring your score early on in the home-buying process is essential. Proactivity in strengthening your score will give you enough time to resolve any potential errors and provide yourself the best foundation on which to receive a desirable mortgage loan.
