By building a successful credit report, you can qualify for a loan when you buy or refinance a home, and get the best mortgage rate in the process. Increase your chances by following these seven key guidelines:
1. Learn how to use credit:
Start with one credit card, and learn how to use it responsibly. Try to pay it off completely each month, and never make late payments. Once you've learned to do that, you can try carrying a balance on your card, but keep it under 30 percent of the limit, and always pay more than the minimum payment.
2. Keep older accounts open:
Older accounts generally score better, as they give your credit score more age. Closing accounts - whether in good standing or bad - doesn't remove them from your score for some time, so closing an account may not impact on your credit score for a while.
3. Think before opening new accounts:
Opening a new line of credit can temporarily lower your score, so you don't want to do it right before trying to get a mortgage. Moving money around your accounts, especially debt, can also have a temporary negative effect. You'll want to have three to five lines of credit open, established and in good standing to get the best credit score.
4. Pay your debts:
Pay your bills and credit cards in full and on time, and your credit score will be higher and look far less risky to creditors. If you have large amounts of debt, do everything you can to pay them down. Debts that pass on to debt collectors affect your credit score a great deal, so do not let a debt go unpaid.
5. Review your credit report and FICO scores regularly:
These can be obtained a few times a year, usually for free. Dispute any errors or omissions as quickly as possible. Reviewing will also give you a good idea as to how you've changed your credit score over time. Be aware that when you apply for a loan or credit card, the creditor will make a credit report inquiry as well, and each inquiry creates a small dip in your score that lasts for at least a year.
6. Provide details:
During your reviews, make sure all your personal information is up to date. If you've moved or changed jobs in the past two years, you'll want to list your previous addresses and employers as well as your current ones. Make sure your job title, social security number and phone numbers are all correct. This doesn't help with the number score, but does help make a more successful credit score overall by showing lenders a complete picture of you as a borrower.
7. Borrow what you can afford:
Being smart about your credit score means making good decisions. Borrowing is good for building a successful credit report. Over-borrowing, however, leads to a worsening debt-to-income ratio if you end up owing more than you can afford to pay. Be conservative in how much you are willing to borrow, and try to ensure you can pay it off without going upside-down in your mortgage (owing more than what your home is worth).
Caldwell Banker Rizzo Mattson Realtors can help you find the best home for your price range and guide you through the mortgage process. Contact us today for all your home-buying needs.