It’s always worthwhile to have a solid credit score, but there are a few times in life when it really matters. One of those times is when you’re preparing to buy a house. After all, a higher credit score enables you to choose from better home loan offers and can result in substantial savings on the total cost of your home purchase. Ultimately, having a respectable credit score might be the key to securing the loan and the home that you truly want. Do you know how to improve your credit score to buy a house?
How to Improve Your Credit Score to Buy a House
Why does your credit score matter to lenders? As Debt.org explains, a credit score is a three-digit number that summarizes your credit history in a form that’s quickly and easily digested. Credit scores typically range from 300 to 850, and individuals who consistently manage their credit well have higher scores. Generally scores above 720 are welcomed by lenders. Meanwhile, scores below 630 tend to generate a warier response. Fortunately, credit scores fluctuate and change as you use credit, so if yours isn’t as high as you would like, you can raise it. There are many tips you can take advantage of if you’re wondering how to improve your credit score to buy a house.
Correct Any Errors on Your Credit Report
According to myFico, inaccurate information or missing data can sink your credit score through no fault of your own. Request copies of your credit report from the major credit reporting agencies. Review the records carefully, and if you spot any errors, dispute them.
Pay Your Bills on Time
At 35 percent, payment history is a major factor in the calculation of your credit score, reports Investopedia. As a result, simply paying your bills in a timely fashion will benefit your score. Conversely, late or missed payments can lower it. If you want to maintain or improve your credit score, keep a close eye on your bills and their due dates. Make it a point to get any overdue accounts current and always pay your bills on time.
Shrink Your Debt Load
If you’ve already got a hefty amount of debt, lenders may worry about your ability to responsibly take on more. As Realtor.com notes, reducing the amount of debt that you’re carrying is one of the fastest ways to make a major improvement to your credit score. It also improves your debt-to-income ratio, which lenders consider when assessing how much you’re qualified to borrow.
Manage Credit Utilization Wisely
Credit utilization is a ratio of how much credit you have compared to how much you are actively using. It’s important because it demonstrates that you can handle credit responsibly, but you’ll want to keep your credit utilization low. As NerdWallet indicates, there are a few ways to do this:
- Don’t spend up to your credit limit. Try to keep the sum of your balances to 30 percent or less of your total credit limit.
- Request a credit limit increase. This instantly boosts the amount of credit available and lowers your utilization ratio.
- Make frequent payments. Keeping balances lower reduces your utilization ratio.
- Keep unused credit cards open. Closing them would reduce the amount of credit available.
Mix It Up
The types of credit that you’ve used successfully also factor into your total credit score, so mixing it up can give your score a nice boost. Does your credit history only include credit cards? Taking out a small installment loan and paying it off appropriately can give your credit score a nice bump. Are you worried about qualifying for a loan and its impact on your credit? HuffPost suggests considering a credit-builder loan, which is somewhat reminiscent of a secured credit card. With these loans, the bank deposits the loan amount in a locked savings account while you make payments. When the loan is fully paid off, your payments are returned to you.
What does your credit history look like? Thanks to the wide range of loan products we offer, PrimeLending Twin Cities can help borrowers from a variety of financial backgrounds with their efforts to reach their housing goals. Are you interested in buying a home or refinancing? Contact us today to discuss your options.