Purchasing a new home can be a wonderful and exciting experience. But some people don’t qualify for a mortgage and unable to get their dream home. This can be heartbreaking and ter disappointing. But it doesn’t have to be that way. Your low credit can be built up in ways that will improve your odds of being approved for a mortgage.
Building credit is an important step in qualifying for a mortgage and securing a home loan. A higher credit score will increase your chances of being approved for a mortgage. Here are some steps you can take to improve your credit and increase your chances of being approved for a mortgage:
Check your credit report and score. The first step in building your credit is understanding where you currently stand. Obtain a copy of your credit report and check it for errors. Dispute any mistakes you find. You can obtain a free credit report from the 3 national credit bureaus once a year by visiting AnnualCreditReport.com.
Make all of your payments on time. Payment history is the most important factor in your credit score. Lenders want to see that you are a responsible borrower and have a track record of making timely payments. If you’re especially prone to failing to make payments by the due date, it might be a good idea to set up automatic payments so you can be sure your payments will be made on time.
Reduce your credit card balances. High balances on credit cards can hurt your credit score, so try to pay down your balances as much as possible. Banks will review your credit utilization percentage which compares your balances against your credit limits. For maximum points towards your credit scores, you should aim to keep your balances below 30% of your credit limit.
Don't apply for too much credit at once. Every time you apply for credit, it results in a "hard inquiry" on your credit report. Too many hard inquiries in a short period of time can hurt your credit score. Avoid applying for new credit prior to seeking approval for a mortgage, unless you really need it.
Use credit responsibly. In addition to making timely payments and keeping balances low, responsible credit use also includes not maxing out your credit cards and using a mix of credit types (such as a personal loan, credit card, or auto loan).
Consider a credit-builder loan. A credit-builder loan is a small loan that is designed to help you build or improve your credit. You borrow a small amount of money and make monthly payments over a set period of time. As you make on-time payments, the lender reports your activity to the credit bureaus, which can help improve your credit score.
By following these simple steps and using your credit responsibly, you can improve your credit and increase your chances of being approved for a mortgage. It may take some time and effort, but building your credit is an important step towards achieving your goal of homeownership.
About the Author
Jeff Boe is a graduate of National American University, a Board-Certified Credit Consultant, President of Boe Credit Consulting, and Executive Director of the Willard and Margaret Boe Financial Literacy Project. He is a credit expert who has successfully rehabilitated his own credit profile and, since 2005, has been working with consumers to improve their own credit files and their financial literacy.
In 2018 he started Boe Credit Consulting in order to help even more consumers improve their financial literacy and to help them eliminate the financial burden of negative credit.
For more information, visit www.BoeCredit.com
©2020 Boe Credit Consulting / Willard and Margaret Boe Financial Literacy Project