Getting a mortgage is a huge financial decision, so much so that it could impact the next decade of your life.
Hence, considering its financial implications, you need to make sure you have a good credit score before you decide to apply for a mortgage.
Your credit score informs lenders as to whether you’re a good credit risk and how much of a loan they should offer you. If you have a low score, it can make it hard to get a mortgage.
On that note, here are five tips for improving your credit score before applying for a home loan.
Dispute Credit Score Reports
If you have a low credit score, there’s a good chance that it has to do with an error on your credit score report, so much so that even the Federal Trade Commission says that credit score errors are quite common.
Hence, if you’d like to improve your credit score, It’s advisable to dispute your credit score reports as it is one of the fastest ways to improve your credit score.
Request for your credit score report and review it for inconsistencies such as wrongly marked late payments and other incorrect negative information.
If you discover any inconsistencies, dispute them immediately, it takes about 30 days for credit bureaus to resolve this, and something like a wrongly marked late payment, when corrected can have a noticeable positive change to your credit score.
Become An Authorized User
Another way to rapidly boost your credit score is by becoming an authorized user. If you have family or someone close to you that has very good credit you can positively affect your credit score by capitalizing on theirs.
The way it works is your family member or friend with a good credit score adds you to their account as an authorized user. In an actual sense, you don’t use the account, but it would appear on your credit report, and timely payments would improve your rating.
The drawback to this is that you can also be negatively impacted if your family member or friend has issues such as late payments.
Get A Higher Credit Limit
You can take advantage of the credit system by requesting a higher credit limit, but this is subject to approval and is determined by your monthly income.
Breaking it down, when you have a higher credit limit but maintain your balance, it lowers your credit utilization.
The positive effect on your credit score is quickly visible as credit utilization plays an important part in determining what your credit rating would be.
Pay On Time
It’s imperative that you make all your credit payments like credit card loans and personal loans on time, as this has a huge impact on your credit score.
Paying on time is a large part of maintaining your credit score, as late payments can affect your credit ratings for more than seven years and is a factor in the FICO scoring system.
However, the effects of late payments fade as time goes on, and an addition of positive credit accounts would speed this up.
Your debt to income ratio helps determine your mortgage qualifications. This is the relation between your earnings and your current debt.
Financial services offering mortgages are more receptive to individuals with a low debt to income ratio. Paying off some of your debts would help in that regard. To calculate your debt to income ratio you add up your monthly expenses and divide it by your gross income.
First-time home buyers should always seek good advice before getting a home loan. You should also consult your financial advisor before making major financial decisions like taking a home loan.