Before even thinking about buying a new home, you have to take a look at your credit score. This information is absolutely vital for the chance of getting approved for a home loan. If your credit score isn’t in good shape, then there are tons of things to do to improve it.
In this article, we will take a look at how to do that. Do know that dozens of factors play an important role in determining your credit score. Naturally, improving on those factors will help you easily get approved for a home loan.
With all that out of the way, let’s begin.
Check Your Credit Score
First things first, you will need to check your credit score. We can easily do that by looking at our credit history. The credit bureau will give you your credit history in the form of a credit report. In addition to that, you can ask for a FICO score from many credit card companies.
The credit report and FICO score are your credit score. Depending on what the score says, you will need to start working on improving it. Here is how.
Pay Your Bills On Time
If you want to buy a new house, you will need to start improving your credit score. To do that, the first thing is to start paying your bill on time.
The reason why this one is so important is ultimately down to the fact that payment history is the single biggest factor that affects your credit score. Late payments drastically lower your credit score. This will hurt your credit report, which reports the past 7 years.
Missing payments by 30 days is a nightmare if you’re in desperate need to improve your credit score. More so, we usually miss payments because we lack the money to pay our bills on time. When that’s the case, you’ll need to make some hard financial changes in life. Instead of wasting money on needless stuff, come up with a way to live on a budget. Every dollar you save will go towards making payments on time. That will drastically improve your credit score and help you get approved for a loan.
Start Making Micropayments
If you’re unable to pay off your entire debt, then it will be wise to make micropayments. Micropayments are small payments we make that positively affect our credit score. Although not by much, making micropayments is a great way to affect credit utilization. Credit utilization is yet another credit score factor that plays an important role.
It is quite possible the second most important factor after paying your bills on time. Instead of waiting to hit the payment deadline, make small micropayments to benefit your credit score.
Ask For Higher Credit Limits
The more credit limit we have, the higher our credit score. But sometimes, we can ask for a higher credit limit if we’ve had an increase in income. Even so, having years of positive credit experience will give you a decent chance of the credit card company increasing your credit limit.
If your credit card company gives you a higher credit limit but asks for a hard credit inquiry, then reject the opportunity as that will only drop your credit score.
Keep Credit Cards Open
Although many believe that you’re supposed to close unused credit cards, it will actually work counterproductively if you’re looking to get approved for a home loan. The more credit cards we have open, the higher the chances of getting approved. Why? Well because the more cards we have, the higher our credit utilization.
Banks and financial institutions calculate your credit utilization based on the amounts of cards open. Even if you’re using them occasionally, it’s better to have them open than closed.
Pay Off Debt
According to American Debt Statistics, 8 in 10 Americans live in debt. Chances are, you are one of those or know someone who is indeed living in debt. When it comes to putting yourself in a position to get approved for a home loan, this puts you in a very bad place.
While it depends on the amount of debt you have, it would be wise to pay off as much of it as you can. Ideally, you should pay off your entire debt as that will put you in a great spot to get approved for a house loan. Unfortunately, that might not be possible right away.
If you are indeed in a lot of debt, banks and financial institutions will think twice before putting you in even more of it. They will look at your financial power or income and determine whether or not you can take out a home loan.
Among other things, banks and financial institutions look at your income, how much down payment you can make, and your credit score to determine if you can take out a home loan. To be successfully given one, you will need to work on all three factors. Considering that we can’t solve one without the others, working on improving your credit score gives you the best possible chance to get successfully approved for a home loan. Lastly, we hope that our article consisting of 6 credit score-improvement tips will help you when the time comes.