When it comes to buying a home, one of the first things a lender will look at is your credit report.
THE CREDIT TIERS GENERALLY LOOK LIKE THIS:
EXCELLENT CREDIT: 750+
GOOD CREDIT: 700-740
FAIR CREDIT: 650-699
POOR CREDIT: 600-649
BAD CREDIT: BELOW 600
A low credit score can greatly hurt your chances at getting approved for a mortgage. If you are planning to purchase a home and would like to increase your credit score before applying, consider the following steps:
NO. 1: MAKE FREQUENT PAYMENTS ON CREDIT CARDS
Making small payments (also known as micropayments) throughout the month will help to keep credit card balances down. Making multiple payments affects a credit factor called credit utilization, which is the ratio of your total debt to your total available credit, and has a powerful impact on scores. Your credit utilization accounts for approximately 30% of your score, so it can bring down your scores when limits are too high. If you’re able to keep your utilization low instead of letting it build toward a payment date, it can benefit your credit score immediately.
NO. 2: MAKE SURE YOUR CREDIT REPORTS ARE ACCURATE
You can check your credit report for free with three major credit bureaus: Experian, Equifax and TransUnion. You should check your credit score once per year and confirm that all of the data in that report is accurate. An error in your credit report can negatively affect your credit score, so it’s important to dispute any information that you believe is inaccurate.
DID YOU KNOW? 79% of consumers who disputed credit report errors were successful in removing them. It's worth investigating!
NO. 3: PAY BILLS ON TIME
You can set up payment due date alerts on your phone to be sure that all your credit cards and loans are organized and paid promptly. Visit your bank or lender’s website to adjust payment dates to reflect your paycheck schedule.
NO. 4: DON'T CANCEL YOUR CREDIT CARD ACCOUNTS
This may seem counterintuitive, but the age of your credit history is a determining factor in your credit score. Cancelling a card can negatively impact your score, so the best plan is to pay down your cards and keep limits clear. A credit score takes into account open credit lines in good standing, so accounts that have been open for a longer period of time show a lender good credit management practices.
NO. 5: PAY DOWN YOUR DEBT
Start by creating a debt repayment plan. Paying down your cards to below 30% of the available funds shows strong credit management and can give your score a significant boost. For those with heavy debt burdens, don’t assume bankruptcy is the only or best method, as filing for bankruptcy will stay on your credit history for many years and negatively impact your ability to get a mortgage.
PRO TIP: A good debt clearance plan is to take 20% of your monthly income towards paying down your debt.
We're not your typical real estate agents.As former city dwellers, we appreciate the qualities that make city lifestyle so unique, from the convenience of walking to your favorite restaurant or corner store to the vast and diverse cultural and entertainment activities. But we’ve also experienced the challenges and frustrations that are motivating you to seek change. During our transition from the city to the suburbs, we had the same thoughts, concerns and questions, prompting us to create a better way to navigate the suburban home search process for others.
The Riolo Team is a team of real estate brokers affiliated with Compass. Compass is a licensed real estate broker and abides by equal housing opportunity laws. All material presented herein is intended for informational purposes only. Information is compiled from sources deemed reliable but is subject to errors, omissions, changes in price, condition, sale, or withdrawal without notice. No statement is made as to accuracy of any description. All measurements and square footages are approximate. This is not intended to solicit property already listed. Nothing herein shall be construed as legal, accounting or other professional advice outside the realm of real estate brokerage.
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