It is quite easy to get lost in daydreams about the great feeling of buying your own home and not pay too much attention to the credit score. However, you won’t be able to purchase that dream house with the low credit score. The lower the score is, the higher the interest rate will be. In the most extreme case, you may not be able to acquire a mortgage at all. So, let’s talk about how you can prepare for that.
Start with the annualcreditreport.com and get a free copy of the credit report provided by Experian, TransUnion, and Equifax. Some work will be needed here as you will have to look for mistakes in accounts stated in the report and incorrect information about the late payments. Correcting them can be enough to significantly raise the score.
The next aspect to be considered is the payment history which takes 35% of your credit score. Be punctual with your payments and subscribe to the automatic payment system for covering the minimum on credit cards and loans. Any missed payment will appear on your report for seven years.
Then comes the credit utilization factor which contributes to your score the most, taking 30%. Try not to exceed 30% of your credit limit, but the ideal situation is when it is not higher than 10%. So, if your credit limit is equal to $5,000, you should try to keep the credit usage below $500. Covering your debts is the best way to increase the score quickly.
Do not open any new credit accounts for some time before applying for a mortgage. Every single one will negatively affect your credit score; moreover, lenders can find the fact of the newly opened account suspicious. Just wait a little bit.
Credit age can also play a vital role, especially if you are new to credit cards. Don’t close the oldest credit account because it will bring you benefits with its long history. Just keep the account and make payments, no matter how seldom you use the card.
Not having many credit products can be also problematic, same as the lack of the history. You can use the possibility to become an authorized user of your relatives’ credit card because of his good history. But he has to pay his bills regularly.
Generally, lenders check the scores provided by all three credit bureaus and use the middle score in order to make the decision. Therefore, you don’t have to have excellent scores from all three bureaus. You just have to improve the weakest part of your credit score.
Don’t apply for a mortgage until you spend six months working on your credit score. It doesn’t get better overnight, but you can be sure that it will improve gradually. It will help you save a lot of money in the future.