You think you are ready to buy a house, but you haven’t yet gotten financing. You know your credit is pretty good, but maybe not as great as it could be. Or maybe you have no idea what your credit score is. One thing is for sure—people with good credit scores get better rates on their mortgage loans. Here are some things you can do to improve your standing, to make a great impression on your mortgage lender.
Find Out Where You Are Now
Not sure what your credit score is? Find out. Soon. This is easier than ever, thanks to all the options now available. Whether you opt to pay for a credit monitoring service, or you take advantage of one of the free credit score checkers available, make sure you get your scores from all three reporting agencies:
Obtaining copies of your report from all three agencies ensures you don’t have any surprises. There are variations between the three, so the scores will not be identical. When a lender runs a credit check on you as part of the loan approval process, he or she will use the middle score.
If You Find Mistakes
When you review your reports, look for anything that is inaccurate, starting with your name, address, and social security number. Your reports should have an accurate list of credit accounts, which include credit cards as well as any other mortgages, car loans, student loans, or unpaid accounts that were reported to a collection agency.
Major errors need to be corrected as quickly as possible. Whether you find you were the victim of identity theft, or whether you find a mistake in a credit balance, errors of this magnitude can cripple your ability to get a home loan. You will need to communicate directly with the agency where the error originated. Some disputes may need to be handled in writing, while others may be cleared up with a phone call to the right party.
Credit Repair Assistance
Another option is to enlist the services of a credit repair agency. National companies like Lexington Law or CreditRepair.com can help you, usually through a monthly fee that includes ongoing monitoring of your credit score. This can be a great option, particularly if you find major problems that are going to be difficult for you to fix on your own.
Prepare for the Future
If you do not have major errors, but your score isn’t where you want it to be, the best way to improve it is to pay down some debt. Credit scores look at how much total credit you have available and compare it to the total balance you owe. The bigger the gap between what you have access to and what you are using, the better your score. You will see improvement in that number as your account balances come down.
Paying off debt is always the best move. You can also look at your existing credit cards to see if you can take advantage of any special offers to transfer balances and get lower short-term interest rates. By consolidating and taking advantage of lower rates—at least for a while—you can improve your credit score a little quicker.
What Not to Do
If you are trying to improve your credit, here are some things you want to avoid:
- Opening new accounts: Opening another account means another credit check, which does not help your credit score. Additionally, credit reports look at how long you have had each account. New accounts are a negative factor, not a positive one. Similarly, avoid requesting a credit limit increase results in a credit check, too.
- Missing payments, or paying late: Other than identity theft, the fastest way to tank your score is to miss payments. Set up auto-pay, set reminders on your phone, or do anything else you need to do to ensure timely payment
- Closing a credit account: This one may seem counterintuitive. But if you close an account, even if you aren’t actively using it, you are decreasing the total amount of credit you have available. When you do that, you are altering that ratio between what you owe and what you have available to you. This pulls down your overall score. While not using credit is good, canceling accounts is not.
- Not paying your parking tickets: Outstanding fines of any kind—parking, library fines, medical bills—that have been sent to a collections agency will appear on your credit report.
- Opening a new insurance policy or cell phone plan: This falls under the category of “don’t do anything that requires a credit check.” While most people know a credit card application means a credit check, they may not think about things like insurance policies or cell phone plans impacting a credit score.
Addressing issues with credit may not be glamorous, but it is necessary to ensure you look good to lenders. The sooner you get copies of your credit reports and find errors and deficiencies, the sooner you can qualify for the mortgage loan you need to buy the perfect house.