A lot of our clients don’t know or understand just how important their credit score is to the home buying process. Some buyers are right on the cusp of having a qualifying credit score, where others have surpassed the minimum requirements but have not reached the tier that will offer prime interest rates (which lowers your monthly payment).
Here are a few tips that can help give your credit score a boost:
Use these to save yourself from making a credit mistake that could kill your chances of buying a home.
Get your free credit report
The Fair and Accurate Credit Transactions Act (FACTA) entitles you to one free credit report each year from Experian, Equifax, and TransUnion and you can get this through AnnualCreditReport.com or by calling 1-877-322-8228.
Review the reports so you know what’s helping you and hurting you
A lot of people have been a victim of fraudulent charges or over-charges that they weren’t aware of that are now delinquent. Pay close attention to the following:
This is a biggy because your payment history is the biggest factor in your credit score. If you have any missed payments that are not correct, you need to fight them……Fast.
Length of Time Using Credit
Older accounts with a good payment history help you, because they show that you have been responsible and consistent with your bills. Closing these accounts if you pay them off can actually hurt you. So don’t CLOSE the account if you pay it off without talking to your lender.
Variety of Accounts
If you have a wide variety of credit accounts it shows you can manage different types of credit. So having a car payment, student loans and credit cards that you regularly pay, proves you are responsible with money you borrow and can improve your score.
Recent Credit Accounts
These may ding your credit in the short run, but once you make several payments they are likely to improve your score relatively quickly.
Amount of Credit
This is also a very important factor. You want to keep the balance on your cards under 30% of your total credit line. So if you have a card with a $10,000 limit, don’t carry a balance over $3000 if you can avoid it.
Expect to wait 30 days for adjustments
Credit bureaus do their reporting on a monthly basis, so if you successfully dispute a payment or pay down a balance, it will likely take up to 30 days to see the positive effects on your credit.
Don’t add new credit after you get pre-approved (especially when you are under contract)
Your interest rate is based on your credit score when you locked your rate. If you make it better, that can help, but if it gets worse, that can actually kill the deal. Here are a few do’s and don’ts for once you are under contract.
- Do: make payments on time NO MATTER WHAT!!!!!
- Do: ask your your lender before you do anything drastic, even making big payments against a card. You may be required to keep a certain amount of reserves in your bank account to qualify for a loan.
- Don’t: Finance anything or get a new credit card without getting permission from your lender. I know the no interest, no payments for a year deal at the furniture place is enticing, but it can kill your deal because it’s new debt that works against your debt-to-income ratio that the lender based their numbers off of.
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