How to Get Your Credit Ready for a Mortgage

You don’t need perfect credit to buy a home. However, the higher you can get your credit score, the better the rates will be on your mortgage and the easier the process will be. Just increasing your credit score by 10-20 points can move you from fair to good credit. Increasing your credit score is a chance to save thousands of dollars over the course of the mortgage. It shows lenders that you’re serious about this investment and can make payments on time. Here’s why you need to increase your credit score before trying to get a mortgage.

How a Better Credit Score Equals Better Rates

Finding just one error on your credit report can increase your score by 10-30 points, if not more. The Federal Trade Commission has reported that one in five people have an error on their report. Going from 680 to 701 moves you from decent credit to very good credit. Lenders are more willing to offer low interest rates and higher lending amounts to people who demonstrate they’re reliable loanees. Make sure to look through all of your credit reports for incorrect names, account status errors, and anything that could quickly improve your score. Even a small jump will go a long way in helping you to secure a mortgage or moving loan to cover expenses.

Pay Down Debt to Show Commitment

The amount of debt you have affects your credit score. Lenders are looking at debt-to-income ratios when deciding on your home loan terms and rates. Paying down balances not only lowers your monthly expenses, but it shows lenders you have space to take on a mortgage. For example, paying off one credit card could move you from 40 percent of credit used to 30 percent. It‘s wise to communicate with creditors about your options. You could always invest in a debt consolidation credit card or loan to pay down debt, enter into payment plans, or work on a settlement.

Take Time to Increase Your Credit Limits

As you pay down your debts, think about ways to increase your credit limits. Making this change will lower your credit utilization, which generally increases the credit score. Lenders look at a person’s full credit history when making decisions regarding approval and terms. If they see you’re constantly working to increase your score, then they will see you as a viable candidate. One of the best ways to increase a credit limit is to just ask the credit card company. Some companies will let you submit a request online whereas you may need to call others.

Credit Builder Loans

Lenders want to invest in clients who understand the power of their finances and are responsible in handling their lines of credit. A credit builder loan diversifies your credit history and may bump your score up. Adding a loan also shows a lender that you have experience with more than just credit cards. Some of these loans do not even require a traditional credit inquiry, which protects your current credit score. Instead, they may look at your history through consumer reporting groups.

Pay on Time to Show Reliability

One of the best ways to increase your credit score and help secure an affordable mortgage is to pay your bills on time. Even missing one payment can really do damage on your credit report. Lenders want to protect their investments. A mortgage company wants to know that you’re going to repay this loan on time. Payment history is a major piece of your credit score since it makes up 35 percent of your FICO score.

More Options

Once you work on increasing your credit score, it is time to shop around. Moving from acceptable credit to good credit shows lenders you are in good credit standing. You do not have to simply accept an approval without asking for other rates and terms. Shopping around generally will not affect your score since credit bureaus understand this is a key piece of the mortgage process.

It’s never too late to try and increase your credit score. Every effort counts. Take the time to lower your balances, look for errors in credit reports, and increase your limits to increase your credit utilization percentage and show lenders you are a safe investment. Taking the time to increase your score before you shop for a mortgage means you can secure lower interest rates and better terms. Owning a home is within your reach if you take control of your finances!

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