8 Tips To Improve Your Credit Score Before Applying For A Mortgage

Applying for a mortgage is scary enough, but taking a hard look at your credit score and how it affects what you spend or save on a mortgage can be daunting. There's much confusion as to what hurts or helps your credit score. Sort out the confusion with these 8 tips to getting your credit score in a better place before you apply.

Look up your credit reports

You must get control of your credit rating, but you can’t do this if you’re afraid to take a look. All three credit bureaus – Experian, Trans Union and Equifax, allow you to obtain a free report every 12 months. You can pull your first report from www.annualcreditreport.com or get a second one from each reporting agency directly. Reporting sites will estimate your score, but you’ll probably have to pay to get the actual FICO score. Galaxy Lending Group provides a free credit assessment and we’ll even provide the report to you for free – just ask us! Look at every single entry on each report and determine if it should be there. It will list who the debtor is, if it’s in collections, if the balance was/is being paid and how long it will stay on the report.

Dispute all errors right away

Look specifically for anything that can hurt your score. Errors include ownership of accounts, incorrect late payments, paid debts that appear outstanding, and old reporting dates not yet removed. Bankruptcies and foreclosures can remain for up to 10 years, but other entries should fall off after 7 years. Experian and Equifax have online dispute forms, but Trans Union only has a mail-in form. Gather all documents for inaccuracies you find on each report, and make sure to notify the agency in writing. Send proof documents by certified mail to ensure the documents are received. Give yourself a few months for these to process before applying for a mortgage.

Do not apply for new credit

Now is not the time to apply for any type of new credit. That means cards of any kind, store credit, or even quickie paycheck loans. Every one of those applications will open a visible inquiry into your credit report, which the banks will notice. You don’t need future lenders to think that you might be about to spend money outside of their loan, or to worry that all of your debt hasn’t been reported yet.

Don't close older paid off credit cards or accounts

Older credit accounts that are paid off only help your length of credit history and available credit ratio. Good credit behavior on your report is better than no credit behavior. Your credit score is improved if the amount of credit extended to you is far above what you actually owe. Canceling an old paid off card lessens the amount of credit extended to you, making your credit history less stable.

Adjust/pay off current card balances

If you have several cards or past due medical bills, take a look at the balances. It’s tempting to simply pay off the lowest ones and then tackle the highest ones. A better idea is to take the same cash and pay off a little of all the debts to try to even them out. It’s better to have three debts at 20-30% of the original amount than to have a couple at zero and one at 80%. The zero accounts won’t help enough to fix the harm the 80% will do to your credit rating. Ultimately, though, try to pay them all off right away.

Pay your bills on time

This sounds simple, but it’s easy to neglect a medical payment or utility bill. Just don’t do it. Paying something on a bill is better than letting it go totally unpaid. If you run into trouble, stay in communication with the company so they don’t report you to collections. Most, if not all, of these businesses will work with you on payment plans.

Get some credit help

Getting advice from a Credit Counseling agency is a good idea whether you are overwhelmed with too much debt to sort, or if you’re simply wanting to bump up your credit rating a few points.

Focused mortgage shopping

You’ve finally taken steps to get your credit score in a better place and now you’re ready to shop for a mortgage. Be aware that every time you start the inquiry process with another program, they check your credit, leaving a report of inquiry. If this happens with the same types of banks/programs within a 30-day period, it’ll be interpreted as harmless mortgage shopping. However, if you do this over a protracted time, starting and stopping with gaps in between, you could incur additional hits to your inquiry rating, which will appear as if you’re considering or have already gone into additional unreported debt.

By following these tips, you can help improve your credit score and your eligibility for a mortgage loan. The sooner you get started on cleaning up your credit, the quicker you’ll be ready to become a new home owner. If you have any questions or if you want your free credit assessment, you can speak to a representative of the Galaxy Lending Group at 602.595.1233.