Simple credit building tips to follow before you buy your first home


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Simple credit building tips
Simple credit building tips to follow before you buy your first home

You might believe it or not, but a decent credit plays a big role in the home buying process. You can trust an expert person to manage the whole deal, but without decent credit, you can’t even be approved for a mortgage. If you can buy the entire house without financing or a home loan, that’s your call.

So, it’s better if you won’t let your low credit become the issue in the path of owning the dream home. Having a good credit score may give you big savings while buying properties, and it’s never too early to initiate the process.

How your credit score plays a vital role

Most of us and all 3 credit bureaus follow the credit score system known as a FICO score. FICO score consists of a three-digit number ranges from 300-850.

A credit score is widely used by the lenders and any type of creditors to determine the credit applicant’s trustworthiness, that he or she can repay the money.

Practically, the credit score is given by keeping each of the following five factors, as per the commonly set standard.

  • Payment history- 35%
  • Outstanding debts- 30%
  • The length of your credit history- 15%
  • Your credit mix- 10%
  • The number of new credit lines- 10% 

Your mortgage application might be denied when your credit score falls below 650. If your score keeps going down, then you must do whatever is possible to clean up your report and build your credit score.

It is possible to improve your credit score within 6 months if you manage your money more efficiently by following strict financial rules. After making the mortgage application the lender will review your credit report. If you want to make things perfect, then you should also learn what exactly does a lender check before approving your application.

Let’s find out!

Lenders may verify:

  • Your identity and employment details – You should provide all the documents and proofs of your identity and job history and make sure all of them should be completely legit.
       
  • Your credit report – The lender will want to know about your credit-worthiness. The credit reporting agencies will also check inquiries, made within 14 days of each other as only one inquiry.
       
  • Your public record information – Your public record is the place where the credit report lists things like bankruptcies, foreclosures, and liens.
       
  • Your past debt records – Your credit report shows how did you manage credit and debts previously. Lenders also review your credit limits, late payments, and the total duration of debts, etc.

Check out the 6 easiest tips below that may help you to build your credit before buying a house

1. You may start now!

If you have a decent credit score and still hesitating about buying a home, I would advise you to start looking for it immediately. Having good credit is valuable for your finances and may help you to grab the best deal. 

You must remember that due to some wrong financial decision, your credit report list up some negative information which may affect your score. So, make sure to get the best deal on a mortgage with the help of your credit score and start searching for a good home this instant!

2. Monitor your credit

This is one of the most important credit tips for first time home buyers. Our credit report is the ultimate image of our financial profile. 

People can get their free credit reports from annualcreditreport.com any time they want. It is important to check your credit report regularly as it will help you to stay error-free. 

Your credit report will include your credit history which reveals how you’ve managed your credit, your total debt amount, and the rate of the interest payment.

So, you must monitor your credit report regularly to avoid any negative effect on your credit score.

3. Avoid hard inquiries

A hard credit inquiry will be taken into account as if you’re actively trying to get new credit. If a lender finds out too many hard inquiries in your credit report, he might think that you are applying for too many new credit lines such as credit cards, personal loans, or auto loans, etc.

Hard inquiries can lower your credit score, so try to avoid it as much as possible. You should limit your credit applications before applying for a mortgage.

4. Be current on bill payments

Late bill payments will negatively impact your credit score. Late payments stay in your credit report for long 7 years. It will also charge you a late fee. Remember the bill payment dates, and set reminders on your smartphone so that you can pay every single bill on time.

5. Pay off credit card debts

Your credit utilization ratio also impacts your home buying. Your credit utilization ratio impacts about 30% of your overall credit score. The higher your ratio, the more it will impact negatively. Experts would suggest that you keep it under 30%.

Also, you must remember, paying off your high-interest credit card debts is one of the best steps to becoming debt free. Higher interest means more debts, more payments, and fewer funds saved for your mortgage down payment, monthly mortgage payments, and other expenses.

6. Don’t apply for new credit soon

Your credit score might take a hit if you frequently apply for new credit cards or loans. It might cost you a few points, but with a low credit score, it is enough to damage your creditworthiness and make your situation worse.

Your score also factors in the average age of your credit accounts. So, opening a new account may also lower than average.

Endnotes

Review the minimum requirements provided by the lender and try to qualify for a mortgage. Talk to your lender and get every piece of information possible. 

It will help you to focus yourself to fulfill the requirements. Provide the lender, in writing, the reason for your poor credit score. Find a good mortgage broker who knows which lenders will work fairly with people having bad or low credit. You may also get pre-approved for a home loan before you ever look at a single house.

Whatever you do, keep believing in yourself and work hard. You’ll get your dream home, honestly!


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