Simple Ways to Improve Your Credit Score Before a Mortgage

Credit Score

Congratulations! If you’re reading this, we’re assuming that you’re about to become a homeowner. Whether it’s your first house or your tenth, it’s exciting. (As we explore, Let’s see if we can improve your credit score)

The reality is it’s also stressful. Applying for a mortgage requires sharing a lot of personal information. Even for financially stable individuals, it can be nerve-wracking to share all of that data.

Before you submit your mortgage application, you need to make sure that you have the best credit score possible.

To learn more about how to improve your credit score, keep reading as RealFi Funding suggests simple ways to help your credit score.

How to Improve Your Credit Score Before Apply for a Mortgage

If you want the best interest rate for your home’s mortgage, you need to show lenders that you can pay your bills on time. They aren’t going to want to lend you money if you don’t have a good credit history. 

That’s why lenders always ask for/look for your credit score. It’s the best gauge for them to determine whether you’re a high- or low-risk investment.

A higher credit score gives you the best chance to get the loan that you need. So, even if you have an average credit score, it wouldn’t hurt to improve it by a few points. In fact, a few points can make a difference of a few thousand dollars towards your loan.

1. Fix Any Credit Report Errors

We’re placing this one as our number one on our list of tips for improving your credit score. It is the most overlooked option that consumers have.

You have access to your credit reports. In fact, you have the right to view your entire credit report once every six months without causing your credit score to drop. So, go do it!

You should understand what is and what isn’t on your credit report so that you can improve your credit score. You may have something on your record that you didn’t know was there.

Maybe you have a debt you didn’t know about. Maybe there’s a record of a missing payment that you know you paid on time.

You have the right to dispute false claims. In turn, these claims will come off of your report and improve your score instantly.

If you feel like your credit score isn’t reflective of your credit history, you may want to check your credit report. There could be something that pulling down your score.

Even if your credit score is reflective of your current habits, you never know when something could pop up on your credit report. Be sure to check every six months just to make sure that your credit companies are reporting accurate information to the credit bureaus every month.

2. Pay All of Your Debt Now

Before you apply for a mortgage, you should pay off all of your debt. That is if you can.

At the very least, you should make sure that you’re paying the minimum amount for each revolving loan and the agreed-upon amount for each installment loan. If you aren’t doing this, you’re hurting your credit score more and more each month.

If you can afford it, you should pay each revolving loan in full and make sure that you’re in good standing with your installment loans. Be sure to pay these debts a couple of months before you plan on applying for your mortgage. It may take a couple of months for your score to come back up to where it needs to be.

If you have any missed payments from the last seven years, you may want to wait to apply for a mortgage. Those missing payments are going to affect your credit score until they fall off of your report seven years after their date.

Another important consideration is your debt-to-income ratio. If your potential mortgage lenders find that you don’t make enough money to pay off the debt that you’re accumulating, you’re less likely to get a good deal on your mortgage. In fact, you may not get a mortgage at all.

Before you apply for a mortgage, you should make your debt-to-income ratio as low as possible by paying off your debts (or increasing your income). Even a small amount of change in your debt-to-income ratio can make you eligible for a lower-interest loan and better terms.

If you want to track your progress, calculate your debt-to-income ratio at the end of every month. By comparing these values, you can see if you’re getting better at paying off your loans and cards.

3. Avoid Large Payments

For about six months before applying for your mortgage, you should avoid large purchases of any kind. It’s okay to make regular gas and grocery purchases, but you should avoid any shopping sprees or unnecessary purchases.

First of all, depending on how you pay for these purchases, you’re going to rack up more debt for yourself to pay off. If you’re using any form of credit for these kinds of purchases, your credit score is going to decrease.

Second of all, adding another line of credit is going to harm your credit score. While having a consistent line of credit is good for your credit score in the long run, it can cause a hard inquiry on your credit. This will make your credit score lower in the short term.

We know that it’s exciting to add another new card to your collection, but you should avoid doing this within six months of your mortgage. After you’re approved, you can go back to adding lines of credit.

Lastly, making large payments may dip into your savings too much. Lenders look at your credit history, but they also look at your bank statements. So, they’ll be able to see if you’re spending too much of your income on other things.

The best way to control your spending habits while you’re waiting for your mortgage is to create a budget. If you set financial goals for yourself, you can limit your spending while saving for other things that you need (like a downpayment).

4. Don’t Close Your Accounts

As our credit accounts get older, we find it tempting to go ahead and close them. What’s the point in keeping the account open if you aren’t using it?

Well, there’s actually a big reason why. The length of your credit history makes up 15% of your credit score. So, by keeping these accounts open, you’re improving your credit.

Although, you should still be using the cards. We recommend placing small purchases on older accounts just to show credit companies that you’re still able to pay all of your accounts on time.

For instance, you could use one credit card for gas payments, another for groceries, and another for utilities. It may seem excessive to have this many cards, but it helps your credit score in the long run.

Plus, most credit companies allow you to place your cards on auto-pay. This means that you can automatically pay off your cards in full every single month. So, you don’t have to think about them.

All you have to do is swipe the card when you want to use it (or make the credit card be your automatic form of payment for things like utilities). Then, if you have the money in your bank, the credit card company will take the amount that you owe every month.

5. Request a Credit Line Increase

This is another trick that people often forget about. Requesting a credit line increase can do a lot for improving your credit score.

First, it decreases the amount of revolving credit that you’re using. Revolving credit makes up about 10% of your credit score. So, by increasing the amount of credit you have, you’re decreasing the amount of credit that you’re using.

Second, it shows lenders that you’re trustworthy. If they see that other lenders are willing to increase your credit line, they’re going to be more willing to take you on as an investment.

Lastly, a credit line increase may help you in the future. While you want to avoid using all of your credit, there may come a time in the future when it’s unavoidable.

That’s when it’s time to use your credit line to its fullest potential.

Again, we highly recommend that you avoid these large purchases, especially leading up to your mortgage application. However, emergencies are unavoidable sometimes. 

If you’re looking to reap the benefits of a good lender relationship, ask for a credit line increase. Keep in mind that getting rejected for an increase does not show up on your credit report, so nothing bad can come out of asking.

RealFi Funding Suggests Simple Ways to Help Your Credit Score

RealFi Funding is the expert in improving credit scores and making sure that you’re ready to apply for your mortgage. As RealFi Funding suggests simple ways to help your credit score, you should take note. All of these tips are valuable and will help you get the mortgage terms you’re looking for.

As you’re looking for home funding options, keep RealFi Funding in mind. We can help you find the perfect loan for you and your future home.

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