If a home purchase is in your near future, getting your credit score looking its best should be a top priority. As discussed in Credit Score 101, your credit score helps lenders determine your eligibility for a loan, the fees you may be required to pay and the interest rate you get.
If your credit score isn’t as high as you would like it to be, or even if you have good credit and just want a little extra bump before your home purchase it’s time to make improvements! Read on to learn how you can improve your score and make yourself more attractive to lenders.
Pay Your Bills on Time
A large portion of your credit score depends on your payment history. Delinquent payments and collections can have a severe negative impact on your credit score. To make the biggest impact on your credit score, start paying your bills on time well before you apply for a mortgage.
Keep Your Credit Card Balances Low
A good chunk of your credit score has to do with how much debt you already have. Commit to paying down debts on your current credit cards to keep your balances low. Try not to “max out” your credit card or carry balances close to your credit limit. Instead, use your credit cards sparingly, and make the required payments promptly.
Avoid Opening New Credit Cards
The number of open credit card accounts that you have at the time your credit score is calculated also impacts that magic little number. Applications for credit show up as inquiries on your credit report and may indicate to potential lenders that you are taking on more debt—a red flag. To improve your score, avoid opening new credit cards.
Give Yourself Some Time
If your credit score needs some work, there is no quick fix. Rebuilding or improving your credit score takes time. Negative incidents remain on your credit history for a set period of time:
• Delinquencies: 7 years
• Bankruptcies: 10 years
• Unpaid tax liens: 10 years
• Inquiries: 2 years
If a bad credit score is preventing you from obtaining a mortgage or putting you at risk for a high-cost loan, waiting until you can raise your score could save you money in the long run.
Once you have followed these steps and improved your credit score, you may be ready to purchase a home. Learn more about how the North Carolina Housing Finance Agency can help you achieve your dreams of homeownership in the home buyer section!