Your credit score is a critical factor in your ability to purchase a new home. It is a metric used by lenders to determine your eligibility and trustworthiness as a borrower. Further, this score enables (or prevents) you from securing the loan you need to move into your dream house.
As you prepare to purchase a new home, you must take great care to improve and maintain your credit score. By working on this score, you will increase the home-buying options available to you and drastically enhance your buying power. To assist you in working toward this goal, we’ve compiled a few of the best practices to improve your credit score below, as provided by the real estate experts at Rex Homes.
1. Pay Down Your Debts
The debt in your name plays a significant role (30% of the calculation) in determining your score. If there is anything you can do to reduce the amount you owe, that is undoubtedly a course of action you must take. Follow the golden rule of credit utilization: Any use of credit above 30% is excessive. Whittle your credit usage down to less than 30%, and you’re sure to see an improvement in your score.
2. Make On-Time Payments
The leading aspect in the determination of your credit score is your payment history (comprises 35% of your score). Understand that, every single time you make a payment, the promptness of your payment is recorded on your report. Payments that are 30 days late or more will be marked on your history, as well as 60 days, 90 days, etc. Anything more than 30 days late can severely impact your score, removing up to 100 points. Such a loss is devastating, so you must avoid late payments like the plague!
3. Check for Errors and Dispute Them
It is all too common for people to find errors in their credit reports. Each year, you are allowed one free copy of your credit report from Experian, Equifax, and TransUnion. Review your report, and if you find any of these mistakes, dispute them right away, as they may negatively impacting your score.
4. Avoid Opening a New Line of Credit
If you do not yet have your debt under control, it will not look good to a potential lender to see you opening up yet another line of credit. Before you take out a new loan, or get a new credit card, consider the necessity of this line of credit. Will this hurt or improve your credit score? Additionally, be aware that, with a new credit line, comes another credit inquiry. Too many inquiries can severely reduce your score, so take care to avoid it.
5. Reduce Your Credit Spending
As you work to pay down debts and repair your score, you’ll want to minimize your spending as much as possible. When you get your account balances to below 30%, keep them there! You don’t want a lender thinking you have bad spending practices after you’ve worked so hard to improve your score!
As you work through this process of improving your credit, take care to seek the guidance of a mortgage professional. They will advise you on the wisest financial choices to make as you repair your credit, making you an eligible, trustworthy borrower in the eyes of potential lenders. You’ll be ready to buy your new home before you know it!