March is National Credit Education Month, making it an excellent time to learn all about the importance of your credit score. A credit score is a number based on your credit history that is used to predict how likely you are to repay your debts. This number plays a large role in determining the interest rate and payment terms of a mortgage loan, so if you’re wanting to buy a home to call your own, you’ll want to make sure your credit score is in tip top shape. There are six things that affect a credit score:
- The amount of debt you have
- How long your credit history is
- Any reports to collection agencies
- Any late payments you may have made
- The number of times you have made a hard inquiry for a credit card
- The number of accounts you have opened and closed
Start off this year’s Credit Education Month by checking your credit score to see where you’re at. If you have a good credit score you’ll be able to borrow money at a lower interest rate, leaving more money in your pocket to use as a down payment on a home. To build or maintain your credit score, you should focus on meeting payment deadlines.
If your credit score could use some help, there are ways to improve it! Buying a home doesn’t have to be a far off, lofty dream. Sometimes small changes can go a long way, so don’t put off what you could do today. Try the following tips to start improving your credit score:
Pay Your Bills on Time
Nowadays most of us are paying our bills online. If you aren’t already doing so, save a tree and sign up for online payments! Then use the auto-pay tool to ensure you never miss a payment.
Keep Your Debt to a Minimum
Lenders typically like to see a credit utilization ratio of less than 30%, which is the amount of debt you have in comparison to your combined credit limits. If you are topping that 30% mark, take a step back and make a plan for the year to avoid making unnecessary purchases so you can pay your debt down.
Check Your Credit Report
Sometimes you will find inaccurate information on your credit report. If this happens, it is important that you dispute the information to have it corrected. Getting an error corrected or removed can improve your score.
Resolve Any Collections Accounts
A bill that is 120 days past due is often sent to collections, which can have a big impact on your credit score. If you have an account that has been sent to collections, try to get it paid down right away. This should be the very first item on your to-do list.
Limit Applying for New Lines of Credit
Any hard inquiry into a new line of credit like a credit card can negatively affect your credit score. Focus on paying down what you owe on your current lines of credit so you can keep your score on track.
A housing counselor can be an invaluable member of your home buying team. They can review your credit score along with your monthly income and expenses to provide recommendations on whether now is a good time for you to buy. They can also help you improve your credit score to meet loan requirements and establish a budget that will help you afford the home you’ve been dreaming of. To learn more and find a HUD-approved housing counselor in your area, visit our Find a Housing Counselor webpage.