3 Things You Can Do Today to Improve Your Credit Score
When it comes to qualifying for a mortgage, there are a few things you can control. Of course, the housing market and interest rates are outside your control, but making yourself the strongest applicant possible is something you can, and should, focus on to prepare to buy a home.
One of the most important factors in your mortgage application is your credit score. This 3-digit number is used to communicate to your track record with handling debt, allowing lenders to assess your ability to take on a new loan.
Not sure where to start with the mortgage application process? We are always here to help, so contact us any time to learn more about the first steps you should take!
What is a good credit score?
Before you know what you need to do to prepare for a mortgage application, find out what your credit score is and how close you are to the score you need. In general, a credit score above 620 will likely be strong enough to qualify you for a mortgage. A higher score will likely get you a better interest rate, so raising your score above 620 will work in most cases in your favor.
If you need to raise your credit score, start with these 3 steps you can take today.
1. Ask for a higher credit limit
One of the factors that makes up your credit score is called your utilization rate. This is the percentage of the credit limit you carry as a monthly balance. For example, a credit card with a $1,000 limit on which you carry a $500 balance has a 50% utilization rate.
One obvious way to lower your utilization rate is to pay down the balance, and this is a great move toward your financial goals. This will likely take some time and consistent effort but is well worth it.
In the meantime, you can also lower your utilization rate by asking for a higher credit limit. In our previous example, if the credit limit was raised to $2,000, the utilization rate would be lowered to a much more favorable 25% without you paying a dime.
If you have a steady payment history or an increase in income since your application, chances are you can get a higher credit limit and instantly improve your utilization rate.
2. Set up automatic payments
A history of on-time payments is another important factor in a high credit score. If you have struggled with this in the past, set up automatic payments on any accounts you can. Even if this means scheduling a minimum payment and going in to pay more as you decide to, you will avoid fees and ding to your credit score that results when you forget to pay on time.
3. Dispute errors on your credit report
If you suspect that there are any errors on your credit report, take the time to dispute them. This may take some time to be reflected in your score, but it is worth the effort to avoid unwarranted penalties. Send a letter to the credit reporting agency whose report has an error detailing the dispute, or report to the Consumer Finance Bureau.