Owing to the pandemic there is a certain amount of uncertainty in the market but there are still opportunities for buyers with the necessary capital to buy new homes. If you are looking to purchase a new house, it is essential to improve your credit score and get all your finances and documents in order. The mortgage experts at Rex Homes Real Estate have some additional information on how you can turn your credit score around.
Why Is It Is Important to Have A Good Credit Score?
Credit score affects the amount you can borrow. Mortgage lenders always take the credit score into consideration when reviewing your mortgage application. A good credit standing is an indication to lenders that you are a good borrower and can be trusted to pay back the loan. An excellent credit score can help you obtain low-interest rates thereby allowing you to save thousands of dollars.
How Can You Improve Your Credit Score?
Multiple factors such as length of credit history, payment history, credit limit, and the amount you owe can influence your credit score. Here are 5 steps that you can follow to improve your credit score.
- Check for errors on your credit report
Inaccuracies in the credit report can hamper your chances of mortgage approval. Some of the most common credit report errors include incorrect accounts, duplicate or fraudulent accounts, incorrect payment information, or outdated information. You should periodically check your credit score through the credit bureau and get any errors corrected by filing a formal dispute with the bureau.
2. Pay your debts and credit mix
About 30% of your credit score is made up of your credit utilization which is based on the credit you have and the amount of it that you have used. If you have more than 25% of your credit amount in debt, then work toward paying your debts to get the amount down to less than 10% to boost your score. In addition to debt payment, a mix of credit also helps in increasing your credit score.
3. Pay your bills on time
Your credit payment history usually accounts for 35% of your credit score. Late bill payments by just 30 days can reduce your credit score by almost 100 points. It is recommended to set up reminders and automatic payments to ensure that all your bills are paid on time.
4. Minimize your credit card spending
It is best to start paying off your major credit card bills and keep your credit card utilization low in the months leading up to your mortgage application. This will keep your account balances in check at all times as you do not know when the lender will check your credit report.
5. Think before opening a new credit account
New credit constitutes 10% of your credit score. If there are multiple credit inquiries in a short period, it may be a red flag to lenders as it shows that you are too reliant on credit. Hard credit checks can also lower your score. Hence, it is best to hold off on applying for new credit cards or taking out any large personal loans.
If you are planning to buy a home, seek help from a good mortgage professional who can assist you in improving your credit score and finding the best prices based on your current credit.