Your credit score is one of the primary factors that mortgage lenders use to determine your interest rate, down payment, and your overall ability to repay the loan.
While other factors often come into play, having a strong credit score is likely going to allow you to secure the best interest rate and terms for your loan.
This article discusses five tips you can use to improve your credit score and some advice before applying for your next mortgage.
How to Improve Your Credit Score
Improving your credit score isn’t a complex process with the right knowledge and mindset. Here are some tips to boost your credit score during the homebuying process.
Pay Your Bills on Time
Timely payments are the cornerstone of a good credit score. Late payments, even if just a few days overdue, can negatively impact your score. Creditors report payment history to credit bureaus, so missing a payment can stay on your credit report for up to seven years.
To ensure on-time payments, consider setting up automatic payments or reminders, and create a budget that accounts for all your bills.
Reduce Credit Card Balances
Credit card utilization, or the ratio of your credit card balances to your credit limits, is a significant factor in your credit score.
High utilization can signal financial stress to lenders. To improve this aspect of your score, aim to pay down your credit card balances as much as possible.
Ideally, keep your utilization below 30% of your credit limit on each card. You can do this by making larger payments or using your credit cards less frequently.
Don’t Close Old Credit Accounts
The length of your credit history is another essential factor in determining your credit score. Closing old credit accounts can shorten your credit history and lower your score.
Even if you don’t use a particular credit card often, keeping it open can help maintain a longer credit history, which is generally beneficial for your credit score.
Avoid Opening Too Many New Accounts
Every time you apply for credit, a hard inquiry is made on your credit report, which can temporarily lower your score. Too many inquiries in a short period can raise concerns with lenders, as it may appear that you’re seeking a lot of credit at once.
Check Your Credit Report Regularly
Regularly monitoring your credit report is essential for identifying errors or fraudulent activity that could be negatively impacting your score. You’re entitled to one free credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) annually.
Review your reports for inaccuracies, such as incorrect account information or late payments that you believe were made on time. If you find any discrepancies, dispute them with the respective credit bureau to have them corrected.
Are you ready to get the home buying process started? The Kim Holland Homes team is the #1 real estate team on Long Island. Contact us or call Kim today at 516-236-6303 to start the process of finding your dream home.