8 Ways to Improve Credit When Applying for a Mortgage
Buying a house is much harder than simply finding a home that fits all the checkpoints. The first step is to secure a loan through a lender. However, getting a mortgage is a long process and can be greatly hindered by a bad credit score.
Before trying to get a mortgage it is important to work on improving the credit score.
Get Started
There is no way to improve on a credit score if the score is not known. Start by getting a copy of a credit report. There are free credit report agencies including most credit card companies. For a more accurate view of credit, there is a way to request a formal credit report each year from the three credit bureaus.
Inaccurate Reports
Many people are stunned to find they have a poor credit score. But there are cases where the credit score is actually reporting incorrect information. If there are any mistakes on the credit report they must be disputed. These mistakes can be taken off within two months and an increase in the score should be seen.
Be On Time
This does not come as a surprise to anyone. To have good credit, all bills must be paid on time. Any late payments or delinquent payments can seriously alter a credit score. If there have been any serious problems with late payments this is going to stay on the report for some time to come. Just try to avoid any new late payments in the future.
More is More
All debts have a minimum payment due. However, this minimum payment barely scratches the surface when it comes to paying back debt. The amount of interest that will accumulate on these debts is astronomical.
Always try to add a little more than the minimum to each payment. Any extra will help to pay down the debt faster.
Use Credit Sparingly
To get a better credit score a person must use their credit cards or pay on a loan. That does not mean these cards need to be maxed out. Avoid having any balances that exceed more than fifty percent of the maximum balance. These higher balances are a red flag to lenders that payments are not being made.
Paying Debt With Other Debt
Bouncing one credit card balance to another credit card is not always helpful in reducing debt. While it may be easier to pay one payment monthly, it will cost you in the form of large fees.
Credit card companies know people will pay off other cards with a higher balance card. When this happens they will charge an extra fee to complete the transaction, ultimately costing the borrower more.
Open Accounts
Open accounts are important for keeping a higher credit score. Do not pay off credit cards and close all of the accounts. This can cause a significant decrease in credit score. Wait until after the mortgage is secured and a house has been purchased to cancel any credit cards.
No New Accounts
No lender wants to work with a borrower who is continuously opening a number of accounts. Do not make any major changes to finances in the months leading up to applying for a mortgage. Do not apply for new credit cards and avoid taking out any loans, including car loans. These big changes will make lenders wary.
Changing a low credit score is difficult. It can take a lot of time and money to recover from a bad credit score. This is why It is important to start this process as soon as possible. Waiting until the last minute before applying for a loan will likely lead to higher interest fees or even a denial on the mortgage.