Your credit score is the key to your future home. It can be the difference between being approved or denied a mortgage. It can even determine your interest rate! Wondering how credit scores can affect home buying? Check out this post for more information.
Don’t let a poor credit score keep you from getting the home of your dreams. With some hard work, you can transform your credit score. Just remember, repairing your credit isn’t a quick fix; it can take three to six months before you start to see improvement. Here are five tips to improve your credit score.
Review Your Credit Report
Reviewing your credit report is the first step to improving your credit score. Knowing exactly where you stand financially will allow you to make the right decisions as you rebuild your credit. You can receive a free copy of your credit report from each of the three major credit bureaus. When you receive your credit report, make sure the information is accurate and report any incorrect information to the credit bureau to have it removed.
Pay Your Bills on Time
Your payment history is the most influential factor when determining your credit score. Paying your bills on time shows lenders that you’re responsible with credit and is a good indicator that you’ll continue to handle future debts responsibly as well. If you’ve missed payments in the past, get up to date on your payments and stay current.
Reduce Your Debt-to-Income Ratio
Your credit utilization, or the amount of debt you have compared to the amount of credit. Lenders use this ratio to determine if you will be able to make your payments each month. They typically like to see a ratio of 30% or lower.
To calculate your credit utilization ratio, take the total amount of credit used during the month and divide that by your total credit limit. For example, if you have a credit card with a $1,000 credit limit and you spend $300 during the month, your credit utilization ratio is 30%.
If your ratio is higher than 30%, it could indicate that you’re taking on more debt than you can afford. The most effective way to reduce your credit utilization ratio is to keep balances low on credit cards and other revolving credit like personal loans. Don’t just move money around; create a payment plan to pay down your debts.
Keep New Credit Applications to a Minimum
While you’re repairing your credit (or even applying for mortgages) limit the number of new credit applications you submit. Each new line of credit you apply for creates a hard inquiry on your report, which temporarily lowers your score.
Continue to Monitor Your Credit
Keep track of your hard work by continuing to monitor your credit. Don’t worry; you won’t hurt your score by checking your report! When you view your own credit report, it’s considered a “soft inquiry” and doesn’t affect your score.
It’s smart to regularly review your credit report so you can understand how well you’re managing your credit and if you need to make any adjustments. It will also allow you to spot and fix any inaccuracies.
Following these tips will help you establish a healthy relationship with credit and save you money in the long run. If you’re planning to purchase a new home this year, you’ll appreciate the hard work you put in to turn your credit score around.