Having high credit scores is always an advantage, but if you’ve decided this is your year to become a homeowner, they’re doubly important.
Although you can buy a home with a score lower than the 695 average, you’ll pay high interest rates. To get the best rates, you need scores of 740 or more.
If your rates are less than 740, take these steps now to put them on the rise:
Make it a point to pay all of your current bills before their due date. If you’re already late on a payment, take care of it today. Creditors don’t generally report non-payment until it’s past the 30-day mark, so hurry, even if it means skipping that morning latte’ and taking the bus to work instead of filling up the car this week.
If you’ve been lax about this, take time to make a chart and note the due dates for all of your accounts. Consult it daily to make sure you’re staying on track and keeping enough money on hand to pay every bill on time.
Being diligent on this point will bring your scores up a notch within one to two months.
Pay down your debt. Any credit card account with a balance that exceeds 30% of your credit limit is really dragging you down, so pay it down! Resist the urge to pay off one card while still carrying a high balance on another – you’re better off to have more active accounts, each with less utilization.
You may think you’re paying all you can right now, but with a bit of investigation into your own habits, you’ll probably find some “money leaks” that you can plug. For instance:
- Eating (or drinking) out – whether it’s indulging in that morning coffee on the way to work, eating lunch in a restaurant, or stopping off after work for a cocktail, eating or drinking away from home is expensive. So brew the coffee at home, prepare your lunch and take it with you to work, and wait until you get home to relax with that cocktail.
- Cable or Satellite TV – Most people are paying for far more channels than they watch. See what you’re paying for and adjust accordingly. Consider cancelling it entirely and using your “TV time” to increase your income with a part-time side job.
- The gym membership – Unless working out is a part of your daily routine, cancel it and use that money to pay down a bill.
- Attending movies, concerts, and sporting events. Yes, those activities are fun, but they’re expensive. Paying down your debt so you can get a good rate on a home loan will prove to be even more fun in the long run.
Also – consider gathering some “found money” via a yard sale or the sale of a boat, motorcycle, or RV that you no longer use regularly.
It takes about one month to see an improvement in your scores once you’ve lowered the balance on every credit card to less than 30% of your available credit. After that, the lower the percentage of use on each card, the better it will be for your scores.
Open a new account. This may sound counter-productive, especially since you’ve been warned not to take on any new credit just before making application for a home loan. However, gaining a new account can help in two ways:
Creditors like to see that you have far more credit available than you actually use.
Creditors like to see that you have a variety of credit. For instance, a credit card, a car loan, and a merchant account (find more details at https://thecatalogueguide.co.uk/). If you already have a car loan and a credit card, go ahead and say yes to one of those offers to “Get 10% off on today’s purchases if you open a new account right now.”
Then, use the card sparingly, so your utilization shows as only 1% or 2% of your available credit.
Remember – open just one new account. Multiple credit inquires will lower your scores.
Opening a new account should have a positive impact on your scores within six weeks.
Become an authorized user on a well-seasoned account. If you have a family member with excellent credit, ask to become an authorized user on one of their accounts. This doesn’t mean you must or even should actually use the account – only that you’re seen as having the legal right to do so.
Becoming an authorized user will allow you to gain the benefit of their good credit history.
Since credit bureaus give added weight to old, established credit lines, choose a card they’ve been paying on time for a good number of years. And of course, choose a card that has an extremely low utilization. You definitely don’t want to become an authorized user on any card with a balance of more than 30% of its credit limit.
Because the full record of this account will appear on your own credit report almost immediately, the impact on your credit scores will also be immediate.
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