Before any mortgage lender will grant you a
home loan, they will
determine beforehand if you are creditworthy. To decide that you have a
good credit history, they will examine your credit report and your
current financial status.
They want to make sure that they are taking
a
good risk by lending to you, especially with a loan large enough to
purchase a home. It is essential for you to have a good credit score to
ensure not only a good interest rate, but that you are guaranteed the
loan. If your credit score could use some improving, there are some
things that you can do to increase
your credit score.
First of all, you may have seen quick fix
advertisements for repairing your credit. These are hoaxes. There are
no quick fixes to improving your credit. It usually takes a lot of time
and effort to increase your credit score.
There are five areas of your credit report
that mortgage lenders look at to determine if you will qualify for a
loan: past payment history, how much your currently owe, credit history
length, types of credit you have had, and any new credit you have
applied for.
If you have a couple areas where some
improvement is needed, here are a couple things that you can do to
increase your credit score:
1. Keep your debt as low as possible. When
you have a high debt-to-income ratio, you credit score will drop. Pay
off your debt instead of shifting it around to another credit card. The
only time when shifting part of the balance makes sense is if you have
one credit card almost to its limit and another one with a lot of
available credit. It is also beneficial to keep your credit cards away
from reaching the limit.
2. Pay your payments on time. Keeping your
payments current if at all possible. If you think you might have a
problem making payments, contact your creditor as soon as possible to
work out a payment plan. Past due remarks hurt your credit report.
3. If your credit history isn’t
lengthy, there isn’t much you can do about that. Just keep
building your credit. You obviously can’t alter time.
4. Open new accounts sparingly. Opening new
accounts will not raise your credit score. Actually, in most cases it
will damage your score.
5. Use different types of credit lines to
make your purchases, like installment loans. When you have a fixed loan
payment, and you make your payments one time, your credit score will
increase. However, don’t have too many fixed payments because
it will lower your debt-to-income ratio.
There are many ways to increase your credit
score when trying to purchase a home. By following some of these simple
steps you will be off to a great start.