8 Tips to Boost Your Credit Score Before Buying Your First Home
Looking to buy your first home? You might want to check your credit score first. Credit scores can have a big impact on the type of mortgage and financing you receive when buying a home.
Your credit reports to three separate credit bureaus—TransUnion, Equifax and Experian. Each of these bureaus constructs a unique individual credit score for you. Your score will fall within a category that creditors use to determine how reliable you are as a borrower. Scores are in the following general ranges: Needs Improvement/Credit Repair (300-549), Fair (550-619), Good (620-699), Great (700-749) and Excellent (750-850).
Staying on top of your credit and checking your reports certainly puts you on the right track toward homeownership. Follow these tips below to keep your credit score on the up and up.
Check for accuracy and any errors or negative marks.
When you receive a copy of your credit report, make sure you review it and verify that all the information is correct. The last thing you want is to have a negative mark on your report that’s inaccurate. Since each credit bureau reports differently, it’s important to review each report—one of the bureaus may have reported an error that the other two did not. Also, make sure that old mistakes are removed from your report if enough time has passed. There are limits on how long some negative marks can remain on your credit report.
Focus on where you can improve.
Find areas for improvement. What’s currently bringing your score down—late payments? Lack of credit age? High credit usage? Identifying any problem areas on your report will consequently help set you up for a solution.
Prevent and rectify late payments.
Ensure that you always make payments on time. It’s helpful to set up reminders via email or text message to keep on top of your bills and recurring payments. Also, you should pay off any outstanding late payments. Some companies will forgive a one-time late payment if you have a solid history of making payments on time. Late payments won’t appear on your report unless 30 days have passed after the due date without payment.
Make sure your credit age is high enough.
Credit age is another factor that determines your score. The longer your credit history is, the greater your reliability is to potential lenders. It’s advisable to build a credit age of five years to positively impact your score.
Resolve any issues with collection agencies.
If you have any outstanding debts, collection agencies may contact you for repayment. Any account that’s sent to collections will appear on your credit report for multiple years and can hurt your score. Make sure that your debts are repaid and dispute any inaccurate marks on your report.
Keep credit apps to a minimum.
Limit any credit card or credit applications when you’re looking to buy a home. This will prevent any unnecessary dips in your credit from creditors checking your report.
Pay attention to your credit utilization ratio.
Your ratio of available credit to the credit you’re using is an important component of your credit score. It’s advisable to keep your ratio below 30 percent to avoid negatively impacting your score. Try to keep your credit usage as low as possible and consider making extra payments each month to give your score a boost.
Keep unused credit card accounts open if they don’t charge annual fees.
The more available credit you have, the lower your credit utilization ratio will be. Even if you don’t use one of your credit cards, it benefits you to keep the account open so that you have greater available credit. You should also weigh the cost of keeping the card if it requires an annual fee.