As a first-time homebuyer, you must make certain preparations to ensure the home-buying process goes smoothly and favorably. One of the very first steps you should take when embarking on this journey is checking your credit score to see where you stand. You should do this at least three to four months before starting this process to give yourself some time to make any adjustments and improve your score.
Your credit score will play a key role in whether you qualify for a home mortgage. If you have a high credit score, around 700 or above, then chances are you should have little trouble finding a bank to approve a mortgage application. However, if your score is below 600, you might not qualify for a mortgage, and if you do, the interest rate might get steep. However, boosting your credit score can make a difference in your mortgage eligibility.
To improve your credit score, consider these four easy tips:
1. Check your score regularly
There are many places online that allow you to check your credit score for free. Despite these options, 44 percent of American adults had not reviewed theirs in the past year, according to the 2016 Consumer Financial Literacy Survey prepared by The National Foundation for Credit Counseling. It’s imperative that you check your credit score regularly to ensure all your information is accurate and to learn what you can do to improve it. Be sure to review not only your credit score, but also your credit history. Ensure there are no errors anywhere, as these can have a detrimental impact on your score. You may have to dispute any mistakes with the credit bureau, if necessary.
2. Reduce outstanding balances
If you have any credit cards with outstanding balances, this could lower your credit score, even if you’re making all the monthly payments on time. Credit scores rely on a metric called “credit utilization” that uses a ratio of outstanding balances to the available credit on the card. If this ratio is too high, it will be reflected on your credit score. Reducing the balances can bump up your credit score – and make you feel good about paying down your credit cards!
3. Create payment reminders
Late payments on any credit cards, utility bills, student loans or car loans will have a negative impact on your credit score. This means it’s crucial that you pay all your bills on time. If you have difficulty remembering when everything is due, set up reminders on your phone’s calendar or on your computer. You can make them recurring every month so that you’re never late on a future payment.
4. Clear up misconceptions
It’s important to know what to focus on when improving your credit score, and false assumptions can create some confusion. For instance, according to a recent TransUnion survey, individuals who had checked their credit score in the past month still held a few misconceptions about what impacts their score. A majority of respondents inaccurately believed that employment history, age, current salary and salary raises were all included in their credit calculations. With a clearer understanding of what actually impacts your credit score – such as paying down outstanding balances and making payments on time – you can stay focused on your goal.