In addition to income and assets, your credit profile is one of the biggest factors in determining whether you qualify for a mortgage. If your credit score is not currently in a desirable range, there are plenty of ways you can improve it to up your chances of home loan approval. Here are the top seven:
- Check your credit reports for accuracy
According to a study from the Federal Trade Commission, one in five people have an error on at least one of their credit reports. Many errors do not substantially affect credit reports, but some can significantly lower scores. By law, you can obtain a free copy of report from each of the three major credit bureaus once every 12 months. Carefully checking each one and reporting any errors can help keep your score at its best.
- Make on-time payments
How often you pay your bills on time accounts for a large percentage of your credit score. Even one late payment can lower your credit score by as much as 100 points and it can stay on your record for seven years. Of course, the effect of any single late payment will decrease over time, but the best way to improve your score is to make consistent, timely payments. You could even set phone or email reminders for yourself to avoid paying late.
- Add other credit accounts
If you are just getting started in the world of credit, your score might benefit from linking other credit accounts like your utility or phone bills to your account. Experian reports that of the 1.3 million U.S. consumers who have used the free linking tool, roughly 840,000 experienced an increase in their credit scores.
- Keep your balances low
Credit bureau formulas grade you higher if you are not consistently maxing out your credit limits. A good rule of thumb is to keep your account balances to less than 30% of your limit. If you can go lower, you’ll do even better – Americans with perfect credit on average only use about 7% of their credit limits regularly.
- Build a credit history
The longer you have been responsibly using credit, the better your score will be. In fact, about 15% of your credit score is decided by the age of your credit profile. It may take several years before your score reaches peak levels. Start by applying for a credit card, making purchases and paying off the balance in full each month. Opening a checking and savings account with a bank if you haven’t already will also help you build a credit history.
- Don’t Close Unused Credit Accounts
Say you have a credit card that you never use anymore. While you may be tempted to close out the account, it may be best to keep it open and unused. Closing it would increase your ratio of debt to available credit lines and could pull your score down.
- Guard against outside inquiries
When your credit report is run by companies or lenders during a loan application process, you could see your score drop. This is because the credit bureau formula assumes you are trying to take on more debt. If you are shopping for a mortgage or car loan, try to have any credit inquiries made withing a 45-day window and the bureaus will count them all as just one credit ding.
You will be much more likely to qualify for a mortgage and to get better interest rates if you take some time to improve your credit score before applying. Give us a call today at 804-424-2200 and we can put you in touch with professionals that offer to help you improve your credit score.