As a homebuyer, especially a new one, it can be difficult to optimize your credit score. Having a great credit score is necessary in order to get the loan you need, and the low rate you want. Getting a low rate can save you thousands over time. In order to help you achieve a low rate that allows you to be comfortable and confident, we have listed the best credit building tips for homebuyers below.
1. Pay Off Your Credit Cards
Credit utilization is how much of your approved credit you are using. So for example, if your credit limit is $15,000, and you have $7,500 used on your card, then your utilization rate would be 50%. Your credit utilization makes up 30% of your credit score, and the higher the utilization, the more negatively it affects your score. It is recommended that you try and keep your utilization rate under 30% for the best credit score possible.
While it is much easier said than done, paying hefty amounts off your credit cards will do wonders for your score. At the very least try to make more than the minimum payment every month. This will show lenders that you are serious about paying off your debt, which can definitely work in your favor.
2. Get Free Credit Reports
One of the best credit building tips for homebuyers is to utilize the ability to get free credit reports. A credit report allows you to see exactly where you can improve your score. So it can be an extremely useful tool in determining what you need to do to attain the credit score you are aiming for.
Each of the three major credit bureaus allow you to request a free credit report once a year. So take advantage of this, and request these reports long before you plan on buying a home. With enough planning you can improve your credit score over time, and eventually be in a great position to apply for a loan and get the low rate you are seeking.
3. Stop Applying for New Credit
When you’re starting a new chapter in your life, like when you decide to buy a new home, it can be tempting to also get a new car, or apply for another credit card to help cover moving expenses. It is best to hold off on applying for any new sources of credit though.
Your credit score definitely takes a hit when you apply for new credit, and you want your report to look as clean as possible when a lender pulls it. Plus age of accounts factors into your score, and a brand new account will not be helping you out in any way.
4. Remove Late Payments and Collections
Payment history has a very large impact on your credit score. Making up 35% of your score, it is vital that your payment history is correct, and you are taking steps to improve it whenever possible. Late payments will automatically be removed after seven years, but there are ways to remove them sooner.
For example, if a payment is labeled as late but you know that is incorrect, you need to call your creditor and resolve that as soon as possible. Even one late payment can bring your score down significantly. If for any reason you do make a late payment, pay the amount as soon as you realize the mistake, and call your creditor. If they have not added it to your report yet, they may not at your request.
5. Become an Authorized User on a Family Members Account
Becoming an authorized user on a trusted individuals account is a great way to raise your credit quickly. If someone else you know has an excellent credit score, and always pays their bill on time it would be worth your while to ask them to add you as an authorized user. Once you become an authorized user, that account will then show up on your credit report.
This can be especially useful if the age of your account is low. The age of your account makes up 15% of your overall score. So, if your account is only a few years old it can be extremely beneficial to become an authorized user on an account that has been open for a decade or more.
If you choose to do this, it is vital that you trust the person completely to make their payments on time, and not maximize their credit utilization. As any negative marks on their credit will affect yours as well.