Tips for Boosting Your Credit Score

So, you have decided it’s time to buy a house. Because buying a house is a major financial commitment, the first thing you need to do is make sure you’re ready to take on the challenge of buying a piece of property. In short, you’re ready to become a homeowner if you have enough money for a down payment and your financial situation allows you to qualify for the mortgage amount you need in order to buy a home that fits your requirements. 

From a lender’s viewpoint, the financial situation of an applicant refers to more than just his or her income and debt-to-income (DTI) ratio. Most lenders also consider the employment status, credit history, and credit score. Although all these things are very important when applying for a mortgage, having a good credit score is an absolute must for a homebuyer who wants to get the lowest possible interest rate and the highest loan amount possible.

What is a good credit score?

According to Equifax, a good credit score ranges between 670 and 739, though lenders generally require a score of 620 for mortgage with a reasonable interest rate. Because a good or excellent credit score can bring along a series of benefits, which often translate into large savings on the mortgage, here are some great tips on how to improve your credit score fast. 

Fix Errors on Your Credit Report

Incorrect information on credit reports is typically at the top of the list of complaints received by the Consumer Financial Protection Bureau. Because many of the errors that appear on credit reports can make an applicant appear riskier to lenders, correcting them before applying for a mortgage could significantly boost your creditworthiness along with your ability to get better terms and interest rates.

If you observe any errors on your report or information missing from it, make sure that you file a dispute with the credit reporting agency that generated the report. Removing specific errors, such as misreported late payments, from your credit report could boost your score significantly, even by 100 points or more. Although the act of disputing errors or inaccuracies on your credit report won’t hurt your score, remember that specific disputed items could adversely impact your score if they’re found to be accurate.

 Make Payments on Time

More than just bringing you peace of mind, paying off that large balance you carry on your student loan, car loan, or credit cards could help you improve your credit score. That’s mainly because paying off outstanding debt reduces your credit utilization rate. Sometimes, however, paying off certain loans and closing accounts could have exactly the opposite effect than you hoped for, causing your credit score to drop. That typically happens when people pay off the loans with the smallest balances first. Because they have fewer active accounts with higher balances, their credit utilization rate will increase. Since the credit utilization rate is inversely related to the credit score, a higher utilization rate will result in a lower credit score.

Given the above considerations, bringing your accounts current as soon as possible is more important than paying off debt, especially if you’ve fallen behind on your loan or credit card payments. Once you make one or more payments large enough to satisfy any past due balance, it’s important to continue to make all of your monthly payments on time. The easiest way to avoid late payments is to set up automatic payments or calendar reminders. If you’re having trouble making ends meet, contact your lenders or a credit counselor, who can help you get and stay current on your loans and bills. Seeking assistance from lenders or credit counseling services won’t hurt your credit score.

Don’t Apply for Multiple Loans at the Same Time

If you intend to apply for different types of loans at the same time, remember that each lender will check your credit score and history as part of the application process. Every time a lender reviews your credit score, a “hard inquiry” is noted as part of your credit history. A single inquiry made by a lender could have a negligible effect on your score. Conversely, multiple hard inquiries made within a short period of time may lower your score by a few points.

On the other hand, it’s essential to know that the inquiries made by different lenders within a short period of time are usually treated as a single inquiry. So, they might have little impact on your credit score. However, numerous hard inquiries appearing on your report within the span of a few weeks could lead lenders to consider you a higher-risk borrower. As a result, they might offer you a higher interest rate. To minimize the impact that hard inquiries could have on your score and creditworthiness, consider spreading out your loan applications over more months.

In addition to potentially affecting your credit score, applying and getting approved for different types of loans and credit cards at the same time could harm your entire credit situation, despite improving your credit mix.

Another type of inquiry that may be recorded in your credit report is the “soft inquiry”. A soft inquiry typically occurs when a lender checks your score to pre-approve you for a loan or when you review your own score. This type of inquiry doesn’t impact your credit score.

Although building good credit takes time and discipline, the aforementioned tips could help you boost your score faster, especially if you have a good payment history. During a good or bad economy, maintaining a good credit score and payment history will allow you to qualify for loan products with lower interest rates, fewer fees, and more perks. If you want to learn more about credit scores and how they can affect your ability to get a mortgage, call our friendly professionals at (904) 822-7520!

Checklist to Buying a Home

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