Get Your Credit Score in Shape to Buy a Home
When you first start out on your own, you may not pay too much attention to your credit score.
It doesn’t seem like it would play such a big factor in your financial standing. Did you know your credit score is a major factor in obtaining a home loan? Purchasing a new home will be one of the biggest investments of your life. Since it plays such a big role, it would be a good idea to make sure your credit score is in a good range.
First Things First
Before you decide to buy a home, you need to be aware of where your credit stands. Don’t assume you know what it is. You’re entitled to a free credit report every year, and also when you are denied credit. Pull the report and see for yourself what is being reported about you.
Don’t Be Negative
When you pull your report, take a look at anything derogatory that has been reported. If you find something negative, it’s best to take care of it now, before you apply for a loan.
- Identify everything that is a negative mark on your report.
- Call the company that reported it to ask for more information.
- Try to work with them to get the negative mark removed.
Hitting a Snag
Sometimes, despite your best efforts, you may run into a derogatory mark on your credit report that you can’t get removed with a phone call. While there are companies out there that can help you clean it up, you could just as easily do it yourself.
Send the agency (Equifax®, TransUnion® or Experian®) a letter requesting removal. Make sure you are clear about it not being your issue, and ask them to remove it as erroneous reporting. Often times, they will try to contact the company that is reporting it and require proof that it is indeed your account and debt. Do this for every negative mark. This process takes some time, which is why it’s recommended that you start this before you go house hunting.
Keep Your Purchases to a Minimum
It might be tempting to use your card here and there for a purchase, especially during the holidays, but don’t do it! You do not want to add balances to your outstanding debt. The lower you keep your revolving debt, the better. While you’re at it, avoid large purchases, too. Don’t get a new TV, vehicle or start any projects that may result in you spending money.
Pay on Time
It’s important to show you can maintain your lifestyle and afford a new loan. Paying your bills on time is one of the best ways to show how reliable you are. Month after month of on-time payments look like a good track record and may influence a lender in your favor.
Don’t Close Any Accounts
It might be tempting to close an account to boost your score, but it doesn’t work that way. The more available credit you have (by having low or zero balances) the better your credit score looks. It says, “Hey! These people are offering me money to borrow, but I don’t use it because I don’t need to.” It tells your lender you are not in a financial crisis and have a good debt-to-income ratio.
Minimize the Risk
You don’t want to do anything that may come off as risky behavior. Paying less than usual on your revolving debt or getting cash advances does not look good. It indicates you may be in financial trouble; lenders look at that to forecast future behavior. Keep making your regular payments and do not use your credit cards for anything.
Keep the Debt Record
It’s common for people to believe once a debt is paid off, it should be removed from your credit report, but that’s not really the best way to go. Seeing you had debt that you have successfully paid in full is only a testament to your reliability and trustworthiness. You’re more likely to get a loan if your credit report shows you know how to handle your finances and you have them under control.
Inquiries About Your Report Show
Be selective about when and to whom you apply for credit. Only do so when you’re ready. Multiple inquiries within a short window – around 30 days – may be viewed by the credit reporting agencies as you simply shopping around for a good rate. If you extend it beyond that, however, each new inquiry may count as a separate ding on your report. That’s why it’s important to have your ducks in a row before you apply. You don’t want to be responsible for hurting your own chances by way of excessive inquiries.
When You’re Ready
If you’re looking for a lender that is on your side, come see us at Galaxy Lending Group. You won’t have to worry about someone trying to take advantage of you here. We’ll work together to help you get the home of your dreams. Call us at 855-595-1233.