Improve Your Credit Score By Following These 7 Easy Steps
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While a good credit score was always important when you plan to buy a house, it now takes a front seat in securing a mortgage. FICO scores of 720 to 740 are typically required by the conventional lender, with an FHA loan needing a score of at least 580.
With this in mind, improving your credit score with these seven steps will help most when applying for a mortgage.
Review Your Credit Report
A bad credit report can cause issues when applying for any mortgage. When you decide that you are ready to buy, get a copy of your credit report. This is the time to review and correct any mistakes that might be seen as negative. Most buyers need six to nine months to clear up those issues.
Rebut Any Mistakes
No one is perfect. Not you nor the reporting agency. If you find a bill that was not paid or an account that you were unaware of, there is plenty of time to work with the reporting agency to fix it. A recent report shows that about one-fourth of the reports they examined had at least one error.
What is a Trade Line and Why is it Important?
A trade line is a combination of loans such as:
- Credit cards
- Student Loans
- Car loans
An important part of getting traditional loans used to secure a mortgage require three trade lines that must have been active within the past one to two years. FHA loans, on the other hand, only require two tradelines. While more is always welcome, fewer will not be enough to get you a mortgage.
Be sure that you do not charge more than 30% of your credit limit and make your payments regularly. If you need additional trade lines, it is also better to get a major credit card rather than a store card.
Do NOT Close Older Credit Lines
By leaving your older credit lines open, these trade lines continue to boost your credit score, even if you no longer use them. By closing good accounts, you take away positive credit score points. Instead of removing cards you no longer use, use them every few months and pay the balance in full to keep the card active.
No More Credit Lines
Six months before you plan to begin applying for your mortgage, it is advantageous to stop creating new credit lines. Adding new credit can temporarily lower your credit score. The new credit is seen as risky because the credit bureau doesn’t know how you will handle having new credit.
Leave Your Cards in Your Wallet!
So you’ve bought your house, now you want all the brand new bells and whistles to spruce it up. Most new homeowners jump into this step before closing on the sale, which ultimately puts the sale in jeopardy and could cancel your loan. This happens if your debt ratio goes above 30%. So, leave your cards in your wallet until you get the keys in your pocket!
Leave Your Money Where It Sits
When applying for your mortgage, you are required to prepare and deliver your bank statements for your checking and savings accounts. You must provide several months, normally a minimum of three, in order to apply. Significant changes, such as closings or large deposits, will set off a red flag in the system. While this will not disqualify you, it creates a headache when it comes to providing a paper trail and finishing your paperwork.
By following these easy tips, you can find better loans without as much stress. Feel free to contact us with any questions you might have about preparing to buy your first home. We look forward to helping you.