Purchasing a home can be a scary process. Making sure that you are qualified, have the proper documents together and are financially prepared to make the large purchase is important to ensure that you do not encounter any obstacles.
Your credit score is an important factor when it comes to qualifying for a home loan. In order for a bank to approve you for a mortgage, you will have to show a strong credit score, among other things. Your score will show the bank that you have a history of paying bills and loans on time and therefore can be trusted with their money.
Here are a few ways that you can work to improve your credit score:
Check your Credit Reports
Reviewing your previous credit reports to ensure that there are no mistakes or missing information is important. Making sure that your credit score is accurate and is not based on inaccurate information is the first step to evaluating your credit score.
If you do see information or reports with possible errors, disputing them is the best next step. This can be done by contacting your credit reporting agency.
Keep Old Accounts Open
While it may be tempting to close out credit cards that you no longer use, it might not be the best choice. When going through the loan approval process, your credit history timeline will be a factor. Keeping credit cards to show that you have a long history is a great way to improve your score.
Along with showing a history of credit, keeping your credit cards open also increases your total available credit. Closing an account can increase your utilization ratio which in turn can lead to a higher credit score.
Watch Your Credit Utilization
Your total debt divided by your total available credit is your credit utilization limit. This limit can play a very impactful role when calculating your total credit score. When you keep your credit utilization within a reasonable range, it shows that you are able to use and pay off your credit wisely.
According to Experian, it is recommended to keep this utilization rate below 30%. This means that if your total credit available is $20,000 you would keep your credit spend under $6,000 every billing cycle. Consistently going far above this suggested percent could indicate to lenders that you might have issues handling your finances.
Use Credit Monitoring Services
Credit monitoring services allow you to keep track of your credit score, any changes it may encounter, andallow you to receive alerts if any action looks suspicious.
With both free and paid services, there are many options with how detailed you want to be able to monitor your credit score. Each service will offer different ways to view your credit, available features, and warnings if something seems wrong.
Pay Bills on Time
While it may seem obvious, paying bills can often be forgotten. Not only does forgetting to pay your bills on time damage your credit score but it can also create late fees that add to your total amount due.
Setting alerts on your phone or opting for automatic payments can help to avoid missing important payments. While you may not witness a drastic credit score change overnight, staying on top of your bills will help improve your score in the long run.
There are a lot of other factors you should check when preparing to purchase a home but understanding the importance of a strong credit score will get you one step closer.
No matter where you are in the home buying process, we are here to help. At Holland Homes Sales, our professionals will assist in the home selling and buying process, and everything in between. We understand that a house is a large purchase. Contact us to help you find the right one.