Whether you are looking to buy a home or you are interested in refinancing your current home, your credit for home purchase is critical to the type of loan financing you can get. Additionally, there are several things that you can do to improve your credit situation if you find out that your picture is less than ideal. Over time, you can improve your credit by as much as 50 to 100 points, depending on your situation. This process is simple, but can be time consuming.
Know your Current Credit Picture
If you’re not sure what your credit score is, check out the FICO Credit Score Estimator. You can also pull a free copy of your credit report once per year to see the factors affecting your score, and make sure that the information is current and correct. The first step to improving your credit is to make sure that you understand the factors that affect it in the first place.
Factors that affect your credit are:
- The amount you owe on revolving and installment debt
- The length of your credit history
- Number of credit inquiries
- On-time payments
- Closed accounts
- Responsibility of credit use
Even if you have blemishes on your credit record, you can resolve these over time. So, it’s important to start looking at your situation now if you would like to buy a home in the near future.
Make a Plan
Once you understand the factors affecting your credit, you can make a plan to improve your score. Here are some of our most popular strategies for improving credit scores to help buyers obtain financing.
The amount you owe on your balances is too high:
- Keep balances low on credit cards and other “revolving debt” Recommendation is to stay under 50% of available credit
- Payoff debt rather than moving it around
- Don’t close unused credit cards always keep the oldest one open as one factor is how long you have had accounts
- Don’t open new credit cards that you don’t need
Your average credit history isn’t long enough:
- Try not to open too many cards close together. New accounts will lower your average account age.
Too many credit inquiries:
- Shop for credit or loans within a short period of time. Try not to let the process drag on longer than 30 days.
Problems with prior credit use:
- If you have had problems with credit in the past, you will need to demonstrate responsible use to counteract the past history. This can take time. Open a new credit line and keep it current, with a low balance.
- Pay bills on time. Even just a single late payment can affect your score in a drastic way.
- Only open new credit accounts when you truly need them.
- Use credit cards responsibly. Make sure your payments are on time and your revolving balances are low.
- Know that closing an account doesn’t make it go away. It will stay on your credit report as a closed account.
Regardless of your prior situation, we can help you understand your home financing options. We are happy to sit down and discuss your credit picture and provide you expert recommendations – to help improve your credit score enough to buy, or to obtain better loan options or rates. Apply today to get started with your no-obligation consultation.