Improving Your Credit Score

What Makes Up a Credit Score?

• Payment history
• Total amount owed
• Length of credit history
• Types of credit in use
• New credit accounts

If your credit score is low, nonexistent, or holding you back in any other way, you may need to consider implementing some techniques to increase your score so you can begin the process of buying a home. Here are some tips to improve your credit score before you apply for a mortgage.

No Credit is Bad Credit

If you have no credit history, this may produce a lower credit score because credit companies have nothing to base your score on. Having no credit history makes a lender more hesitant to work with you. If you are hoping to qualify for a home loan sooner rather than later, it is best to rectify your current credit score or lack thereof. Open a credit card or two and make a few purchases to start building a record of using credit and paying it back on time. Being diligent on these payments will show a potential lender that you are a responsible borrower.

Be Credit Smart

If you have existing credit cards, being responsible for your purchases and payments will improve your credit score. Keeping balances low and paying your bills consistently will create a history of responsible credit behavior. This will go a long way when it comes to improving your credit and raising your score. Be sure not to max-out a credit card for this can hurt your score even if you pay it off each month.

Plan to Reduce and Eliminate Debt

A little bit of debt can become a big problem if left untouched and unmanaged. It can take years to pay off a credit card if you keep adding to it instead of paying it off. This can damage your credit score and will affect your ability to buy a home. Instead of paying a little bit extra on each debt account each month, try focusing on one account at a time.

If you make a bigger payment to combat the problem, the debt on that account will be repaid faster and more efficiently. You still need to make the minimum payments on your other accounts, but by putting a little extra money into one specific debt obligation, you will notice a significant change in the amount that you owe. Once you pay one account off, leave it be and move on to your next outstanding balance. Keep doing this cycle until all your debt is paid down or completely gone.

Look for Lower Interest Rates

If you bought a car or opened a credit card account when interest rates were higher, you may be able to renegotiate your current rate with your lender. So much of your monthly payment goes toward interest, keeping you in debt longer. If you can lower the current interest rate, this will lower your monthly payment and the total amount you owe.

Do Not Close Accounts that Are in Good Standing

If you have outstanding balances on student debt, car loans, or credit cards, but they are in good standing, keep paying these off at your normal rate. On-time payments are the foundation of a great credit score, and creditors love when you have an active account open rather than a closed account.

In Conclusion

When it comes to getting preapproved for a home loan, it is beneficial to have a good credit score. With a little credit improvement, buying a home will be in your future.