When you’re ready to buy a home, one of the most important factors needed to get the lowest interest rates and best mortgage terms is to have a healthy and high credit score. If you’re planning to purchase a home this year but your credit score is a little less than outstanding, that's okay! CityWorth Mortgage can work with you and your credit history. For some tips on improving your score over time, continue below to learn how you can improve and build up your credit score prior to applying for a mortgage loan.
• Lower your ratio of credit utilization to available credit. The amount of credit you use vs. how much you have available (i.e., your current balance divided by your credit limit) is one of the most heavily weighed factors in the calculation of your credit score. One of the quickest ways to send your score upward is to pay down any credit card debt you currently carry.
• Make sure you make all your payments on time, every single month! Most lenders won’t report a late payment to the credit reporting bureaus until you are at least 30 days late - but keep things safe by making sure that you pay all of your bills on time each month. Late payment reports will negatively impact your score (sometimes by dozens of points) and will remain on your credit report for up to 7 years. If you can’t make a payment, call your lender and let them know so that you and your lender can develop a plan and you can avoid any costly negative marks on your credit report.
• Do you have a limited credit score? If you’ve never had a credit card or taken out any kind of loan, you have what’s called limited credit. To build your credit history and your credit score, you could take out a loan for something you planned to pay cash for. Buying a new car and planning to pay cash? Instead, finance the purchase through the dealer, your bank, or another lender. This will show mortgage lenders that you can act responsibly when extended credit.
Prospective mortgage lenders want to see that you can manage debt properly and pay on time, and even small purchases on credit can demonstrate to them that you will act responsibly with a mortgage loan. The best ways to build your credit are to always pay your debts on time. Maxing out credit cards and making late payments tell lenders that you may not be able to pay your mortgage on time, making them less likely to want to extend a loan to you.