One of the biggest and most important financial decisions you may make in your life is the purchase of a new home, and your credit score is a very important number that plays a part in that process. Mortgage lenders base their decision on whether or not to loan you money (and how much to loan you) based on how big a risk they think you will be, and your credit score is a big part of what helps them determine that risk level. So building or repairing your credit is a great step to take when thinking about starting the process of finding your new home.
HOW TO GET STARTED BUILDING YOUR CREDIT SCORE
Step One: Review Your Credit Report
- An important step in building or repairing your credit is to review your current credit report. There are many sites available to view your credit report for free. Check your credit on a monthly basis, add it to your to-do list when paying your monthly bills. You want to make sure to monitor your progress, review your scores and set monthly goals that will help you improve your credit rating.
- Look at all your personal information and make sure to fix any mistakes and keep all information up to date. Also look for any discrepancies and make sure to file any necessary disputes with the credit bureaus. Also, keep in mind, that most negatively closed accounts are supposed to be deleted after seven years with the exception of bankruptcies, which can reflect on your credit report as long as 10 years.
Step Two: Understand What Causes Your Score to Go Down
- There are many things that can affect your credit score adversely. One of the biggest is past due balances that have been reported to the credit bureau. Be sure to pay any past due balances that are reflecting negatively.
- Another common cause of a poor credit score is maxing out your credit cards. You always want to stay below 30% of your issued credit limit.
- Avoid opening department store credit cards. These cards are viewed unfavorably and often are the hardest to resolve disputes, should they occur.
Step Three: Understand What Causes Your Score to Improve
- Paying down balances on your credit cards and leaving your oldest cards open are great ways to boost your rating. Remember, you don’t want to close off any old credit cards just because you don’t use them. Many times, when this happens, lenders will see the new accounts that have recently been opened, and see you as a much newer borrower than you really are. The length of your credit history is also a very important factor in your score.
- Charge small amounts on your credit cards and pay them off at the end of each month. It doesn’t help you at all to have a bunch of credit cards you never use. Lenders want to see that you are wise with the credit that has been extended to you. (They want to know you can borrow and PAY BACK money!)
There are many ways to improve or rebuild your credit score. Understanding and knowing what your credit is like now and finding out what is influencing your score will allow you to take an objective look at all the options that may be available to you. At Cloninger Properties, we refer all of our clients to Andrea Kindley with Fairway Independent Mortgage Corporation. Andrea and her team of mortgage experts can help you as you financially prepare to purchase your new home.
Keeping It Real,
The Cloninger Properties Team