Before you apply for a mortgage, you should always check your credit score. This will help you know whether you have good, fair or poor credit, and give you an idea as to what types of loans you might qualify for, and what interest rates and terms you can expect.
Let’s say you find out your credit score is lower than you’d like. You may still feel tempted to try and buy a home right away, but if you have the flexibility in timing to wait, you should consider holding off until you have raised your score. Doing so could save you all sorts of money and inconvenience over the years ahead.
At Grandview, we always like to help our customers qualify for the best loan, so we are able to run a credit simulator for you which is provided to us by the credit bureaus. These “what if” simulations allow us to visualize where you stand with your credit and give us a basis for building you a customized plan to help you boost your score.
While some plans may require weeks or months, with others we can get results for you in just a couple of days.
In the meantime, here are a few tips to help you bring your score up as quickly as possible so that you can apply for a mortgage sooner rather than later.
Boosting Your Credit Score Before Applying for a Mortgage
- Check your credit reports and fix any errors. Your credit score is a numerical expression of the information contained in your credit report. Each year, you are legally entitled to receive one free credit report from Equifax, TransUnion and Experian, the three major credit bureaus. On this report, you can view the status of your credit accounts and view events in your credit history. This allows you to check to make sure that the data is accurate. In some situations, you may spot errors. Some of these may be adversely impacting your credit score. You will want to reach out to the credit bureaus to correct these errors. This in turn will raise your score. Speaking of your score, you should note that Credit Karma and similar credit scoring services do not use the same scoring models that mortgage lenders use. So ordering your credit score from these services will not provide you with accurate insights into your score. That is why it is best to have your local mortgage broker pull up your credit to get an accurate view.
- Pay off as many debts as you can. If you have a lot of debts, do your best to catch up on them. Square away as many as you are able to, and consider consolidation if it makes financial sense. The fewer debts you have, the better your credit score should be.
- Get current and stay current on your existing bills. If you have fallen behind with credit card payments, utilities, rent, or other bills, that is going to reflect in a negative fashion on your credit report and your credit score. If it is possible, try and catch up on these bills, and then make sure you do whatever is necessary not to miss future payments. If it is simply a matter of forgetting, consider setting up some alerts or auto payments online. Note that if you cannot actually keep up with your current bills, mortgage lenders have a pretty good reason to be turning you down. You should probably wait until your situation is more financially stable and viable before you take on additional debt.
- Make regular use of credit. If you have a credit card or line of credit (or several), you should be using them on a regular basis. Of course, you must make sure that you are using them responsibly. If that means only making small purchases with them, then do that for now.
- Keep your credit account balance low. In general, you should try to keep the balance of your credit account reasonably low. That means a maximum of about 35% of your limit on average. If you can get your balance even lower than that, that is even better. Whenever possible, try and pay off your balance on your credit card immediately after you use it.
- Resist the urge to close or open accounts pell mell. Sometimes when consumers want to raise their credit scores quickly, they get the notion that they should go out and close a bunch of accounts with poor histories, or open a bunch of new accounts to start afresh (or both). While this might push your credit score up briefly, you can expect the effect to wear off quickly—and in many cases, this type of behavior can actually backfire over the long term.
- Be gradual and cautious when adding new accounts. If you do choose to open new accounts, do so one at a time over a period of time. If you do it all at once, that may have an adverse impact on your score. This is particularly important if you are still in the establishing stage (more on that in a moment).
- Make sure that anyone borrowing with you (i.e. your spouse) has a solid credit score as well. If you are buying a house with your spouse, remember that you are not the only person who will be signing on your loan. It isn't just your credit score which is important; it is also your spouse's score. If your score is higher, that could help both of you qualify for loans that your spouse could not get on his or her own. The downside however is that interest rates and terms that you are offered may take a hit because of your spouse’s lower score. So even if your credit rating is good, if your partner's rating is only fair (or poor), it may be worth taking some time to work on building up his or her score before you apply together for a loan.
- If you need to establish credit, do that. Finally, sometimes the issue is not a poor credit score, but simply a lack of established credit to begin with. If you are an affluent young homebuyer without an established credit score, but you are ready to buy a home, you will want to work on building credit first. If you're still in college, strongly consider accepting some of the student credit card offers that you receive. If you are out of school, some options for building credit include applying for a secured loan, applying for a credit card through a store, or getting someone else to add you to their credit card. In some cases to, simply keeping up with your rent payments would be enough to gradually increase your rating (ask your landlord if he or she reports to the bureaus). You also can consider taking out a smaller loan with a cosigner. This can help you raise your score with less risk and commitment.
It Takes Some Time to Raise Credit, But Doing So Is Worth It
You cannot raise your credit score overnight, but taking the time to do so before you apply for a loan can really open up a lot of doors, and keep your payments low over the long term.
Whatever your credit score and situation, Grandview Lending can help you apply for competitive loan. We can also help you refinance at a better rate if your score has improved since you originally took out your loan. Please call us today at (317) 255-0062 if you're ready to schedule a consultation.