Your credit score plays a huge role in determining your mortgage eligibility and the interest rate you’ll receive. A higher score can lead to better loan terms, saving you money in the long run. If your credit score isn’t where you want it to be, don’t worry! There are several strategies you can use to boost your score before applying for a mortgage. Let’s dive into some practical steps you can take.
1. Check Your Credit Report
The first step in improving your credit score is understanding where it stands. Obtain a free copy of your credit report from the major credit bureaus (Equifax, TransUnion, and Experian). Review it carefully for any errors, outdated information, or fraudulent activity. Disputing mistakes can result in an immediate score boost.
2. Pay Your Bills on Time
Payment history accounts for 35% of your credit score, making it the most important factor. Late or missed payments can significantly harm your score. Set up automatic payments or reminders to ensure you never miss a due date, and if possible, bring any delinquent accounts current.
3. Reduce Your Credit Utilization
Your credit utilization ratio (the amount of credit you’re using compared to your total available credit) accounts for 30% of your score. Aim to keep this ratio below 30%, and ideally closer to 10%. If you have high credit card balances, focus on paying them down to improve your score.
4. Avoid Opening New Credit Accounts
Every time you apply for a new credit account, a hard inquiry is made on your credit report. While a single inquiry won’t have a significant impact, too many in a short period can lower your score. If you’re planning to apply for a mortgage soon, it’s best to avoid opening new accounts.
5. Keep Old Accounts Open
The length of your credit history accounts for 15% of your score. Closing old accounts can reduce the average age of your credit history, which may lower your score. If you don’t want to use an old account, simply keep it open and avoid any unnecessary fees.
6. Use a Secured Credit Card
If you have limited credit history or poor credit, consider applying for a secured credit card. This type of card requires a cash deposit as collateral but works just like a regular credit card. Responsible use of a secured card can help build or rebuild your credit.
Improving your credit score is a long-term effort, but the rewards are worth it. Higher scores lead to better mortgage rates, which can save you money over the life of your loan. Need help navigating the homebuying process with a strong credit profile? Follow me on Instagram @shakema.therealtor for more tips, and book a FREE consultation call with me today to start your journey toward homeownership!
