How To Improve Your Credit Score To Buy A Home
If you’re planning to buy a home, chances are you don’t have enough cash sitting around to pay for a house in full.
As such, your primary option for purchasing a home is to apply for a mortgage. However, it can be difficult to be approved for a mortgage in some cases. Houses typically cost hundreds of thousands of dollars. Lenders are taking on a lot of risk by letting you borrow this much money,
Often, the reason that people are denied for a mortgage is due to their credit. Poor credit tells lenders that they can’t trust you to pay back your loan on time or in its entirety. Typically, you’ll need a credit score of at least 600+ to be approved for a decent mortgage.
If your credit score could use some improvement, here is how you can increase your score to help you buy a home.
Pay Past Due Balances
First and foremost, you need to pay off your overdue balances.
Payment history accounts for a good chunk of your credit score. As you continue to miss payments, your credit score will only get worse.
Moreover, if you don’t make payments at all for a long period of time, your debt could be sent to a collections agency, or you could face foreclosure. These things could potentially show up on your credit report and decrease your score even more.
If you begin making on-time payments now, your score will gradually increase over time.
Don’t Close Your Accounts
Many people make the mistake of closing their accounts as soon as they pay off their debts. Some people will also close accounts that still have a balance.
In either case, closing the account will more than likely do more damage than good.
Even if you’ve paid off your debt, leaving the account open can help your credit score as it increases the length of your credit history.
Closing accounts will often reduce your credit history age and have a negative impact on your credit score.
Don’t Apply for New Credit Cards
While trying to improve your credit score, you should avoid applying for any new credit cards.
First, applying for a new credit card will leave a credit inquiry on your account. Credit inquiries can have a negative impact on your score and can remain on your credit report for months or years.
Moreover, opening a new credit card will lower the age of your credit history, which, again, has a negative impact on your credit score.
Dispute Credit Report Errors
Finally, you can check to see if there are any errors on your credit report.
If you aren’t able to access your credit report through your bank or credit card company, don’t worry. Everyone is entitled to one free credit report every 12 months from each of the three major credit bureaus. You can get yours from annualcreditreport.com.
Be sure to thoroughly review your credit report to look for any errors. If you find any mistakes, you can dispute it by writing to the bureau that reported the error.
For most people, buying a home involves applying for a mortgage. Unfortunately, if your credit score isn’t up to par, you may not be able to get the mortgage that you need to buy your dream home.
If you find yourself in this situation you can begin repairing your credit by following the steps listed above.