Home Mortgages: A Six Month Guide to Raising Your Credit Score
websitebuilder • May 13, 2020
When you apply for a mortgage, your credit score becomes an important factor as you seek out low interest rates and high loan amounts. Plans may not change overnight, but you do have the opportunity to help your credit score within a six month period.
While full credit score rebuilding could take time, if you want to seek out a home sooner rather than later, then use the following tips to receive a small boost in your score.
Lower Credit Utilization
The amount of available credit is an important factor for your credit score, but even more important is the amount of the available you use. The factor is known as the credit utilization rate. The lower rate is, the higher your credit score will climb. For example, if you have $20,000 in available credit and have $2,000 in charges, then you will have a 10 percent utilization rate.
For the best impact on your credit score, try to keep the rate at or below 5 percent. You could manually calculate your utilization rate with all your credit cards or seek the services of a free credit report to list everything for you.
In a six month period, work on paying off a majority of your credit card debt. If possible, go beyond the minimal payment to keep cards clear from any debt. When you apply for a mortgage, not only will you have an increased score, but a lower amount of debt working against you.
Avoid New Credit Options
As you go through everyday life, you will be presented with opportunities for new credit. Credit card offers, store credit cards, or auto loans are just a few ways you may open new credit accounts. While some of the offers may be tempting, each one could negatively impact your credit score.
For example, when you apply for credit, a company may perform a hard inquiry on your credit. The credit check will cause a score to go down. One hard check doesn’t usually affect your score much, but many at the same time can. The more companies that inquire about your credit, the more your score will lower. The inquiries also remain on your account for two years.
When possible, try to put off all new credit applications until after you receive a mortgage or purchase a home. For example, if you wanted to open a new credit card to purchase appliances, wait until after the mortgage process completes so your credit score remains the highest at the time of the mortgage application. The six month wait makes a big difference.
Assess Debt and Bills
When you head into the mortgage process, one of the biggest impacts is the debt and income ratio. The debt will account for major purchases including current mortgages, car payments, student loans, and other outstanding bills like medical bills.
In six months, do whatever you can to pay off debt. For example, if you have a car payment, try to make an extra payment to help pay off the balance and any extra interest you owe. Also try to consolidate debt for lower interest rates.
With lower interest rates, debt will build slower and the extra you pay off will apply directly to the loan. When you go to apply for a mortgage, you will want to reduce the amount of debt as much as possible. When your income is compared, a mortgage company will see how more of your income could apply to a mortgage rather than any current debt.
In the long run, lowering your debt could mean the difference between a $150,000 mortgage and a $200,000 mortgage.
For more information on mortgage inquiries, contact us at Secure One Capital. We will help you choose the ideal mortgage to fit your needs and use our expertise to help you own a home of your dreams.
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