So, you’ve decided that you’re ready to buy a home! Before you find your perfect real estate agent and go out on the weekends to tour homes on the market, there are a few things you must do. One of those things is to prepare your credit to buy a home.
In order to qualify and receive a mortgage, home buyers must have some kind of credit. Most mortgage companies only work with buyers who have a credit score of 620 and above. This credit score can determine the interest rate you receive on your loan.
We’ve come up with a few ways for you to prepare your credit to buy a home.
Get Your Credit Score and Report
First thing’s first, you’ll have to obtain a copy of your credit report. This will determine where you are credit-wise in your home buying journey. You are entitled to receive one free credit report every year. However, to get your FICO score, you’ll have to pay a small fee.
After receiving your score and report, you can decide how to move forward. You may be surprised at how low your credit score is and may need some time to prepare your credit to buy a home. It’s recommended that you receive your credit reports six to nine months before you plan to buy a home.
What Does a Credit Score Consist Of?
In order to prepare your credit to buy a home and fix it if needed, you should know what exactly a credit score consists of. The credit score scale ranges from 300 to 850 points. For good credit, most people fall in the 600-point range.
A large part of your credit score is based on your payment history. If you miss a payment for more than 30 days, your score can drop 50-100 points overnight! You’ll want to make sure you always pay your bills on time.
Credit cards will give you balance limits. You may feel the need to run wild with the $5,000 line of credit you’ve just received. However, it’s good practice to only have a debt of 30% of the total balance.
The length of your credit history also plays a role in your credit score. How long have you had a certain line of credit open? The longer the better!
A small percentage is how often you open new lines of credit. When your credit is checked by a car dealership or department store, your credit score can lower by three to five points each time. So, it’s a good idea to limit these checks from outside companies.
Lastly, the different types of credit you have factor into your score. Insolvent accounts, such as a mortgage or student loans is quite different than your credit card. It’s good to have a variety.
Don’t Worry – You Can Fix Your Credit Score
Was your credit score lower than you expected when you checked it? Don’t worry! There are ways and services to help you fix your credit score. Better Qualified is just one of the many services to consult and work with to prepare your credit to buy a home.
It does take some time to prepare your credit, which is why we recommend checking it many months before you plan to buy a house. The best thing you can do is making all of your payments on time, to start.
Don’t Open New Lines of Credit
To prepare your credit to buy a home, it’s essential that you don’t open any new lines of credit during the process. This can actually lower your score in the long run because companies must check your credit.
Pay Off Your Balance
Decrease your debt by paying off your credit card balance. Pay above the minimum payment required each month. Do not transfer debt from card to card. This will just leave you with the same amount of debt. It’s better to pay off as much as you can and pull yourself out of any debt.
Decrease Your Credit Card Spending
You’re in the market to buy a new home, which means you’ll need some new furniture and decorations to fill it. It can be tempting to go out and buy all of these things at once, but it’s important to be patient and wait until after you go to settlement.
If you go over the recommended 30% of your limit, you may be disqualified from receiving your mortgage. Building a home takes time and patience. To best prepare your credit to buy a home, wait to put more expenses on your credit card.
Avoid Big Purchases
Sometimes home buyers get so excited about moving into their dream home that they decide they want to go out and buy a car. This is a big no-no! Avoid making big purchases such as a car or boat. This can lower your credit score when it is checked by the dealership and could ultimately disqualify you from your mortgage.
Ready to Buy a Home?
Are you ready to prepare your credit to buy a home? Consult a local real estate agent to see what your next steps are to buy your dream home. They can refer you to credit repair services and mortgage companies suitable for your needs.