Lenders want to know that you have the means to pay back the loan. Your credit score is a concise way to give an impression of your financial picture.
Check Your Credit Score
There are three main credit reporting agencies. They are Equifax, TransUnion, and Experian. You can get a free credit report from each of them each year.
There are some sites, like Credit Karma, where you can access your credit report and learn tips on how to improve it. Since these are considered soft checks, you won’t impact your score in a negative way.
You’ll be more likely to see changes in your score if you wait a few weeks to check. This gives utility and credit card companies time to send reports or updates that will impact your score. There are ways in which you can improve your credit score.
Don’t just let a stack of bills sit on your kitchen table. Make sure that you are paying them all in full by the deadlines. Setting up an online autopay may be your best to ensure timely payments – and a better credit score.
Take Action to Improve Your Credit Score
Since your credit score factors into your loan status, work to improve it. Do this in the months leading up to a home search. Then you’ll be able to walk into a lender’s office armed with a better score!
Maintain Lines of Credit
Open a new line of credit and keep existing ones. Opening a new credit card will provide another way of making on-time payments. And by maintaining existing credit cards, you’ll establish older lines of credit.
Even if you have a credit card you barely use, don’t close it. It’s good to maintain existing lines of credit to demonstrate that you’re responsible.
Keep Your Credit Utilization Low
Credit utilization refers to how much of your credit card limits you’re spending. Ideally, you want this number to be low – under 30%. The way to do this is not to spend much using your credit card!
The average American has over $6,000 in credit first payday loans Fayetteville AR card debt. You can set yourself up for a better credit score by not spending up to your credit limit. On top of that, pay off the debt in full each month.
Elevate Your Credit Limits
Your credit card company may be willing to boost your credit limit. Doing this gives you a higher ceiling for spending. This might seem like an invitation to spend more with your credit card, but don’t do it.
Raising a credit limit can help your credit score – as long as you keep your spending habits normal. When your credit limit goes up, your credit utilization will go down.
Suppose you have a credit card with a limit of $6,000, and your balance is $2,000. That means your utilization rate is 33%. But if you raise the limit to $8,000, your utilization rate is only 25%.
Know Your Loan Options
When it comes to getting a loan, your current financial picture may dictate the kind of loan you can get. But it’s smart to know the differences before you head to the lenders.
What Are Conventional Loans?
Conventional loans are insured by private lenders. Most of the time, the requirements to qualify for these loans are strict. You’ll need a credit score of at least 620.
A lower credit score means that you may pay a higher interest rate. But you still may be able to score a down payment as low as 3%. The catch is that you will need to pay private mortgage insurance if you put down less than 20%.