8 Ways to Improve Your Credit Score & Get a Better Mortgage
Credit scores are super important when it comes to buying a home. Having a good or excellent credit score comes with many benefits, including a lower interest rate on your mortgage loan. Many credit repair companies advertise a guaranteed increase in your credit score. However, most people will find the cost of the service to be a tad expensive. We’ll be going over some tips for improving your credit score and how you can get free professional advice. A better credit score means a better mortgage loan.
Some credit repair companies charge upwards of $3,000 to help you repair your score. Paying that amount is silly. The cost of the service could instead be put towards paying off any debts that may be hindering your credit score. It makes no sense to pay for credit repair service, if you are planning on buying a home. Instead, speak to a mortgage professional that can give you the same advice free of charge.
Stonehaven Mortgage Pre-Approval & Credit Service
Stonehaven Mortgage (RNP’s preferred local broker) gives their mortgage clients credit advice free of charge. Their business is contingent on their clients qualifying for a mortgage loan and nothing else. They want you to buy your dream home, meaning they are just as motivated as you are to get your score up.
1. Talk to a mortgage broker & take a close look at your credit report.
Get in touch with a professional mortgage lender like Stonehaven Mortgage, to get started with this process. Their team will take an in-depth look at your credit score and tell you where you stand. They’ll let you know what your home purchasing budget is and what interest rate you qualify for with your score. They’ll help you understand what has brought your score down and explain what you need to do to improve it to qualify for a mortgage.
The first step before starting your search is getting a pre-approval letter from a mortgage lender. The pre-approval process is the perfect opportunity to get an in-depth look at where your credit stands. The process takes into account your credit score, income, and debts; and establishes how much of a mortgage you can qualify for. Most real estate agents will not work with you until you have a pre-approval letter because of two reasons: (1) you cannot put an offer down on a home without a pre-approval letter and (2) because they need to know what your purchasing budget is as they search for your future home.
Take a professional look at your credit report.
The information recovered from your credit report is combined with other personal information, like income and savings, to give you a purchasing budget. Your purchasing budget depends on the types of properties you’re interested in. A mortgage professional is able to explain every financial detail about the home buying process.
Bringing your score up could mean a reduction in the amount of interest you pay long-term. Higher credit scores get lower interest rates! If your dream home is out of your budget, a mortgage professional can help you understand what steps you can take to qualify for a higher loan amount.
2. No late payments.
Late payments are the most common culprit of low credit scores. One late payment can cause your credit score to go down anywhere from 50 to 110 points. Avoid any late payments by setting up automatic payments and setting up reminders or alerts on your accounts.
3. Pay off any debts that are in collections first.
Debts in collections have as much of an impact on your credit score as late payments do. It is important to take care of those debts as soon as possible to avoid them negatively impacting your score. Late payments and collections comprise around 35% of your score.
4. Avoid opening new lines of credit while looking for a home.
New lines of credit are understandably necessary sometimes, but keep in mind that each new line of credit comes with a hard inquiry on your credit report. New lines of credit make up somewhere around 10% of your score. Too many hard inquiries on your credit report could bring your score down enough to make you go from excellent credit to good credit. Hold off on that new line of credit until after your home purchase.
5. Reduce your credit utilization amounts.
Credit utilization is the measure of the amount of credit you are currently using on all your different lines of credit. This is an important part of your credit score that you can easily correct. Keep your credit balance below 30% of the credit limit on each account.
6. Increase your income. Or reduce your debt to income ratio.
Your debt-to-income ratio (DTI) is not reflected on your actual credit score since your credit report does not include your income. However, the DTI measure plays a big role on your mortgage loan. Lenders use the DTI measure to calculate your loan limits when you apply for a mortgage. This is why it is so important to avoid adding new monthly expenses and reducing credit utilization is a good idea.
7. If you don’t have much credit history, start by getting a credit card.
Sometimes, the problem with your credit score aren’t late payments or collections, but instead having little to no credit history. A minimal credit history can hold you back from qualifying for a mortgage loan or may mean a higher interest rate on your loan. Get started right now. Many credit cards give you reward points that can be used for flights, cash back, among other things. Be sure to get a card with a low interest rate, a good reward incentive, and pay your credit card in full every month to avoid interest charges.
8. Get a secured credit card.
Secured credit cards require consumers to put down a deposit first, but work just like a normal credit card besides that. A secured credit card offers an easy way to rebuild your credit score or start your credit history, if you’ve been denied by other credit cards. Just remember, no late payments and keep the credit utilization amount low.
Reach out to RNP to get started with your search.
Your credit score is always changing, and an error or discrepancy can have big repercussions on your home purchasing plans. Get in touch with an RNP agent to get started with your home purchase. We’ll connect you with a mortgage lender right away and get you started on your search.
Remember, there is no need to pay for a credit repair service if you are looking to buy a home. Save that money for your down payment instead. Talk to a mortgage professional, like Stonehaven Mortgage, to see where you stand.