How To Improve Your Credit Before Buying a New Home
Tip #1: Check Your Credit Report For Errors
Everyone in the U.S. is entitled to a single, free credit report per year. The first step you should take is getting your hands on your current credit report so that you can see what the bank is going to see when you apply for a home loan. Once you have your report in your hands, you can check it for errors, and see which overdue debts you still have lingering over your head like the Sword of Damocles. If there are mistakes, you need to get them corrected as soon as possible in order to improve your credit score.
Tip #2: Pay On-Time
There is nothing worse for your credit score than late or delinquent payments. Whether it’s your phone bill or your credit card, make sure you have everything up-to-date, and that you start building a long, unbroken chain of payments. Additionally, when it comes to credit card debt, make sure you pay it down as quickly as you can so that you have as little outstanding debt as possible from one bill to the next. Making more than just the minimum payment goes a long way toward improving your credit score.
Tip #3: Increase Your Savings
Saving money isn’t as much fun as spending it, but it is a necessity for buying a new home. If you have a pleasantly plump savings account, then your lender knows you have enough money on hand to make several months’ worth of mortgage payments. That cushion is good for you, and if your records show that you’re regularly adding money to your savings account, then it also shows you are making more than you’re spending. That shows you’re responsible with your money, and it makes you a lower risk for a bank looking to make its money back.
Tip #4: Be Patient
Your credit history isn’t something that can be fixed overnight. Even if you win the lottery, or become spontaneously wealthy by selling a million copies of that novel you’ve been tinkering with, your credit score isn’t going to immediately shoot through the roof. Think of it like a chain, with every on-time payment, paid-back debt, and rent check as one more link. You need to have a history of strong, unbroken links in order to build-up your credit score. That takes time. Sometimes months, sometimes years.
Tip #5: Request a Credit Limit Increase
There is, perhaps, no better way to improve your credit quickly than to show you have credit, but that you’re being responsible by not using all of it. If you have a $5,000 limit on your credit cards, request that it be increased to a $7,000 or $10,000 limit. Having a higher limit doesn’t mean you should spend any more money, though. If your credit card company trusts you with that bigger limit, then that will reflect positively in your credit report when you make an offer to buy a house. It will also give you a better debt to credit ratio. If you have a $2,000 limit, and a $1,000 balance, then you’re at 50 percent of your credit limit. If you have a $10,000 limit instead, though, you’re at 10 percent of your limit. 10 percent makes you look reserved and responsible, which is good for your credit score overall.
The most important thing to remember about your credit is that small things, done regularly, can strengthen it considerably. It may take several years of doing the little things right, but just like small workouts lead to a lean physique, so too will small increases to your credit habits make your score big enough to buy a house.
For more information on buying a house — such as: what to do before looking for a house, the real estate market, neighborhoods that meet your preferences, recommendations on a good mortgage broker, etc. — simply contact me today to start a conversation. Having insight from a licensed real estate agent can make a big difference and help ensure you achieve your goal with less effort.
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