When preparing to buy a home, it's important to do everything you can to increase your chances of qualifying for the mortgage you want. One of the factors that will have a huge impact on your ability to qualify for a mortgage is your credit score. Lenders pay attention to a borrower’s credit score when deciding if they’ll finance a home loan or not. Your credit score also can influence the interest rate.
A higher score will make it easier for you to qualify for a competitive mortgage. Find out what you can do to give your credit score a boost before applying for a mortgage — of all the home buying tips you come across on your journey to homeownership, these credit score tips may be some of the most important.
This is a great way to ensure you always pay your bills on time. When it comes to having a clean credit history, a lot of your ongoing expenses matter. Rent payments if you’re renting, your phone and Internet bill, credit card payments, your car loan — ideally, you’re paying all of these bills on time. Set up the auto pay feature where possible, and you’ll never have a late payment!
Credit card debt is a type of revolving debt. This simply means that you can continue using your credit, up to your limit. Auto loans, student loans and standard home loans are non-revolving as you can’t keep using your credit once you pay down some of your balance (unless you have a line of credit home loan).
When it comes to your credit score, it’s the balances on any revolving debt that you want to focus on reducing. You want to have a low credit utilization ratio — which means you want to use only a small percentage of your available credit. If you can pay off your credit card balances completely, that's even better. Once you get your credit utilization down, your credit score will start to rise.
However, don’t be tempted to ask for a credit line increase. This isn’t a smart move when you’re preparing to buy a home. Even though this can increase your credit utilization because you have more room to borrow, some lenders look at high limits as a high risk. This means that even if your cards are paid off right now, you could potentially get into a lot of debt in the future. This could make it difficult to keep up with your mortgage payments.
Checking your reports from the three major credit reporting bureaus — Equifax, Experian and TransUnion — is a best practice for personal financial well-being. You should check your reports each year to make sure there aren’t any errors, which could be dragging your credit score down. If you see a problem, dispute it to have it removed from your report as soon as possible.
Follow these credit score tips and you’ll be well on your way to qualifying for a mortgage with a low interest rate. If you’re looking for other home buying tips from mortgage experts, get in touch with us at Atlas Crown Mortgage. We can help you with the entire mortgage process whether you’re interested in a traditional loan, an alternative loan or investor loans. Reach out today to learn more.
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