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We all know the importance of a good credit score when it comes to buying a home. So here are 6 action steps you can take to improve your credit score:
First-time home buyers with bad credit have options.
That three-digit credit score and credit report can make the difference between being granted a loan for a house and being flat out rejected. Why? Because our credit report tells a financial story of us as payers of debt; and it has a long memory. Few people manage to go along forever without making a single financial mistake, and the fact is that many times those people who pay cash for everything end up with a lower credit score than those of us who juggle debt.
Your credit score can be improved by taking these action steps. Follow these steps and you will greatly increase your chances of getting home loans at competitive interest rates.
1. Explain things to a lender in writing
Provide the lender, in writing, the reason for your poor credit score. Explain your situation if a certain credit card bill was never forwarded. Explain late payments. Even when a lender’s loan equation kicks your application out of the system, sometimes a human being will take a “second look” at your loan application to see if there is any way to make things work. Some lenders are more sympathetic and flexible than others. You may have to shop around a bit to find the one who will take a chance on you. Don’t get discouraged.
2. Pay early and pay extra
Ideally, pay your credit card bills in full each month and be sure to mail your check early so it is applied a few days before the due date listed on the statement. In doing so, the creditor will have already processed your payment and your balance will be reduced to zero before they report data to the credit bureaus. If your check arrives after the due date, the creditor will report the full balance due, even though your check is in the mail and you may still be within the typical grace period.
3. Deal With Disparities
It’s not uncommon for the credit reporting agencies to make mistakes in your credit report. A very important step is to contact the agency with your dispute and make it right. Call the credit card company or call the bank. Eliminating just one report of a defaulted loan or late payment can make a significant impact on your credit score.
4. Increase your credit limit
Up to 30% of your score is determined by something known as credit utilization, or how much of your available credit you’re actually using. Let’s say you have 3 credit cards with a combined credit limit of $6,000, and you typically charge and pay off about $2,000 per month. While this is a good scenario, it would be even better if your total allowable credit was $30,000 and you still used about $2,000 per month. This is somewhat of an industry trick and although it can be helpful to improves one’s score, it should also be noted that many other factors come in to play. For instance, if you increase your credit limits and proceed to start maxing out your cards, this benefit will be lost.
5. Keep old cards and use them occasionally
Most people think it’s better to close out old credit cards, but in fact, doing so may actually hurt your score. As mentioned above, a higher credit limit can actually help your score, and those older accounts increase the overall length of your credit history. Cards with no activity over a lengthy period, say 6 months or 1 year, will most likely be reported as inactive on your credit report and therefore will not be calculated into your score. Say your old credit card from college for example, with a $5,000 limit is one such card. This old credit history and extra dollar limit would be beneficial to your credit score. Start using and paying off that older credit card occasionally to see benefits.
6. Borrowing as a last resort from your relatives, friends, or your IRA
Though this should probably be a last resort, it is an option for many people. Additionally, the Roth IRA has a special provision just for this purpose. With the Roth, as long as your account is open for 5 years or more you are allowed to withdraw up to $10,000 in order to buy your first home.
If you do borrow money, you need to disclose this information to your lender. If the money provided was a gift and does not need to be paid back you should provide proof of to your lender in writing.
When you apply for a home loan and everything has worked out, be careful not to mess things up. For instance, don’t go out and finance a car while you’re waiting for your home purchase to close. It could throw off your credit ratio and ruin the entire loan process.
So while there are many factors that determine your mortgage eligibility, credit scores are likely the most influential factor. Good credit is built over time. Your ultimate goal is to raise your score in order to be considered for higher loan amounts and better interest rates. Raising your credit score will impact the price range of home you’ll be approved for. If we are in control of our credit score, we have more options when it comes to the type of home we can afford.
Give us a call right now at 844-388-APEX(2739) for a fair cash offer on your house.
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– APEX Home Buyers
