7 Credit Score Tips When Buying a Home

August 21, 2023

Whether you’re a first-time homebuyer or an experienced property investor, one crucial factor that can significantly impact your journey is your credit score. Your credit score plays a pivotal role in determining your ability to secure a mortgage and the terms you’ll be offered.

This article discusses seven credit score tips when buying a home and how you can improve your credit score for a better interest rate on your next home loan.

  1. Stay on Top of Your Credit Reports

Obtaining your credit reports from the three major credit bureaus is essential. You’re entitled to a free credit report from each bureau once a year with AnnualCreditReport.com

Reviewing your credit reports allows you to identify errors or fraudulent activity that may be present. To combat this, it’s a good idea to initiate a dispute to ensure your credit report accurately reflects your financial history.

  1. Pay Bills on Time

Payment history and on-time payments is a critical factor in credit scoring. Consistently making on-time payments for credit cards, loans, and other bills demonstrates to lenders that you are responsible and reliable. 

If you struggle remembering to pay bills on time, try setting reminders or automatic payments with your credit card companies to avoid a negative impact on your credit score.

  1. Reduce Credit Card Balances

Your credit utilization rate, which is the amount of credit you’re using compared to your credit limit, has a big impact on your score. Aim to keep your credit card balances as low as possible, as most credit bureaus want to see this number under 30 percent.

Lower credit utilization shows lenders that you manage credit responsibly and can positively affect your credit score.

  1. Don’t Open New Credit Accounts

When you apply for new credit, a hard inquiry is placed on your credit report, which can temporarily lower your credit score. Avoid opening new credit cards or loans before applying for a mortgage to maintain a higher credit score during the home-buying process.

  1. Avoid Closing Accounts

The length of your credit history is an essential aspect of credit scoring. Older, well-managed credit accounts can positively impact your credit score. Closing these accounts may impact the length of your credit history and negatively affect your score. 

Instead, keep these accounts open and use them occasionally to maintain an active credit history.

  1. Pay Off Outstanding Debts

High-interest debts, such as credit card balances, can negatively impact your credit score. Prioritize paying off outstanding debts to reduce your utilization rate and demonstrate responsible debt management to lenders.

  1. Avoid Major Purchases

Taking on new debt shortly before applying for a mortgage can raise concerns for lenders. Large purchases, like financing a car or furniture, can increase your debt-to-income ratio and affect your ability to qualify for a mortgage. 

It’s best to avoid such purchases until after you’ve secured your mortgage and bought your home.

Final Thoughts

Remember, improving your credit score is a gradual process, and there are no quick fixes. It requires responsible financial habits and consistency over time to build a high score. 

Additionally, keep in mind that credit scores are just one part of the equation; lenders consider other factors like your income, employment history, and down payment amount when evaluating your mortgage application.

Are you looking for a real estate agent in Massapequa? 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.