Whether you’re seeking a mortgage for a new home purchase or looking to get a construction loan, your credit score plays a large part in your plans. The higher your credit score, the better off you’ll be; a high credit score can get you better financing terms and lower interest rates. Even if you currently have good credit, moving your credit score up even a few points can make a dramatic improvement in the amount and type of financing available to you. Here are four proven ways to boost your credit.
1. Check Your Credit Report Often
On a regular basis, you should check your credit report at least once a year at a minimum. When you’re looking to get a mortgage within the year, you should keep a close eye on your credit report. Contrary to popular belief, pulling your own credit report doesn’t impact your score either positively or negatively. However, if your goal is to purchase real estate, in the months leading up to your mortgage application (about 90 days prior) it is best to have your lender pull a credit report since the credit model used by lenders is slightly different then the model used by the free credit reporting agencies. That way you will know your true score as it relates to your home purchase. This will put you and your lender in a good position to make moves to raise your score, as well as handle anything that might be pulling your score down.
2. Pay Your Bills on Time
Late payments and missed payments are reported on your credit report. The fewer times you have one of these negative marks on your report, the better financing options you’ll have. When you pay your bills on time, that gets reported on your report as well. Lenders analyze your history of paying late, on time, or missing payments. A significant number of recent missed payments may or may not disqualify you entirely for a loan, but it will certainly impact your borrowing rate and other terms of the financing.
3. Keep Balances Low
You should strive to keep your balances below 25% of the available limit on each of your credit cards. If you can keep the balance at zero, that’s even better. It’s important to use your charge cards on a regular basis, too. Then, when the bill comes due, either pay off the entire balance or pay off enough to stay beneath that 25% threshold. Using and paying off charge cards demonstrates that you know how to use credit responsibly.
4. Pay Down Debt
Having a high balance on a charge card over a long period of time works against you when applying for a home loan. If you find yourself, consistently topping off a charge card so the balance is always at the maximum limit, you’ll need to change that habit. Before you apply for a mortgage loan with American United or any other lender, pay down as much of your debt as possible. Lenders calculate your percentage of income against how much outstanding debt you have. The less debt you are carrying, the better your overall score will be, and the better lending offers you’ll receive.
Taking these four proactive steps in the months leading up to your home mortgage or construction loan application will ensure that your credit score is the healthiest it can be. When you can show lenders that you understand how to use borrowed money responsibly, they’ll be more apt to offer you more money with better terms. Remember that your interest rate on any loan will stay in place for the life of the loan unless you refinance down the line. Raising your credit score so you can obtain a lower interest rate is a smart financial strategy. Would you like more advice about how to position yourself financially before applying for your first mortgage or construction loan? Feel free to call Joe at 908.322.5423 or via email: email@example.com.