In obtaining a mortgage for buying your first home, your credit score plays a big part in achieving this goal. Mortgage lenders use credit reports as a factor for loan approval and determining the ideal terms. A high credit score greatly improves your chances to get approved for a mortgage.
That said, it pays to work on your credit before applying for a home mortgage. Here are ways to boost your credit score as a first-time home buyer.
MAKE REGULAR PAYMENTS ON TIME
Settle your bills on time because payment history accounts for 35% of your total score. In the eyes of lenders, a person who pays on time indicates their capability to pay back. Missing or late payments have a negative impact on your credit history as this reflects on your record for seven years.
Aside from credit cards, make sure that you pay other bills and loans on or before the due dates. Paying bills on time rewards you with a strong payment history.
PUT NEW CREDIT CARDS AND LOAN APPLICATIONS ON HOLD
A hard inquiry is pulled out every time you take a new credit application, and this can drop your score temporarily. Lenders are wary of taking borrowers with too many open lines of credit.
If you’re planning to apply for home financing, refrain from opening any new credit cards or signing up for auto or student loans or any type of credit.
KEEP CREDIT UTILIZATION BELOW 30%
Credit utilization is the percentage of credit you use compared to the total available credit. Let’s say, you have a credit limit of $10,000 and you’ve spent $5,000, your credit utilization rate is 50%.
Aim for a credit utilization of 30% , then lower it down to 10% which is the most ideal percentage to raise your credit score. Keep your utilization low by paying your credit card balances in full each month. Another way to improve your credit utilization is by requesting a higher credit limit from credit card companies.
DISPUTE CREDIT REPORT ERRORS
From errors in personal information, a wrong status of account, closed accounts reported as open to accounts incorrectly reported as late or delinquent, inaccuracies in credit reports are common. 34% of consumers had errors in their credit reports.
Review your credit report at least once a year and check for inaccuracies. Any errors on one of your credit reports can pull down your score. While going through the credit report is tedious, disputing any errors can help improve your credit score.
KEEP OLD ACCOUNTS OPEN
The length of your credit history matters to lenders. If you’ve paid off your credit card debts, don’t close the account. Closing an old credit account decreases the average age of your credit history and hurts your credit score. Keeping an account open with a long history and solid record of paying on time will leave a favorable impression on lenders.
Make sure you work with an experienced Realtor in the goal of buying your first home in Summerlin, NV. I, Tammy Eden, would be happy to help first-time home buyers in their journey toward homeownership. Call me at 702.513.1300 or leave me a message here.
