Posted: 2019-06-25 | Author: Richard Simon
In order to become approved for a home mortgage, you will usually need to have decent credit. Your credit score is one of the major factors that lenders look at during the approval process, and the higher your score, the more loan programs you qualify for, and ultimately, the better your chances of approval.
You may be looking to get into a new home; your income is good, you have some money set aside for a down payment, but your credit score is not where you would like it to be. You are not alone, there are many people that are in the same situation.
The housing collapse and subsequent economic downturn of the late 2000s was hard on a lot of us financially, and many people filed bankruptcy, had their homes foreclosed on, or both. In addition, there are always a lot of people who are just starting out in their adult lives, and they have not had a chance to establish their credit yet.
Building better credit is not as difficult as it may seem. It is really just a matter of knowing what factors the credit reporting agencies use to calculate your score and doing the right things to bring your score up.
Here are some steps you can take to raise your credit score and better position yourself to purchase a home:
Pay your Bills on Time
This may seem like common sense, and few people would argue that it is good practice to pay your bills on time. However, many people do not realize how important this is if you want to have a higher credit score. Lenders are very interested in how reliable you are in making timely payments, and if you make a payment that is more than 30 days late, even one time, this can negatively affect your credit score.
Reduce your Credit Card Balances
In addition to payment history, credit utilization is another major factor that goes into the calculation of your credit score. The lower your credit card balances are, the better your score will be.
Open New Accounts to Establish Credit
If you’ve never had credit before or you are trying to rebuild your credit after bankruptcy, one of the best ways to do this is to open some new accounts for the purpose of establishing (or re-establishing) a good payment history. If you cannot qualify for unsecured credit, you may be able to open a credit card account that is secured by a cash deposit.
Do not Apply for Too Much Credit Too Quickly
When trying to build credit, be careful not to apply for too many accounts in a short period of time. Every time you apply for credit, it creates a “hard inquiry” on your credit report. Too many hard inquiries can negatively impact your credit score, at least in the short-term.
Dispute any Inaccuracies on Your Credit Report
Review your credit report from all three of the major credit reporting agencies at least once a year for any inaccurate information. If you find any information that is incorrect, especially information that is derogatory and damaging to your credit, file a dispute with the reporting agencies where the report appears.
Negotiate with Collection Accounts to Have them Removed from Your Report
If you have any collection accounts, they will not automatically be removed from your credit report even after you pay them in full. However, you can contact the collection company and offer to pay in full or even settle the debt for less than the full amount if they agree to stop reporting it to the credit bureaus.
Get Credit for Your Cell Phone, Utility, and Rent Payments
There are ways you can have your cell phone, utilities, and even the rent you pay reported to the credit bureaus. And if you make these payments on time, this can provide a boost to your credit score. Experian has a program called Boost that allows you to report cell phone in utility bills, and there are several companies that can help you report your rent to the credit reporting agencies.
Need further Credit Enhancing Ideas? Speak with a Local Lending Specialist
There are numerous ways to build your credit, so you’re better positioned to qualify for a home loan and get a better interest rate. For additional credit advice, speak with a local lending expert. And local specialists can work with you and provide personalized advice and credit enhancement strategies based on your specific circumstances.