Getting a Home Mortgage: Improve Your Credit Score
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With home prices low, and mortgage rates still reasonably low, it’s a good time to buy a house. (Just don’t buy to buy, however. Make sure you can actually afford the home.) But the real question is whether or not you will be approved for a home mortgage loan. And one of the biggest factors that mortgage lenders use — especially since the financial crisis — is your credit score. You need to have at least a good credit score to get approved for a loan, and an excellent score to get the best terms. For many mortgage lenders, a score of at least 680 is necessary, and for the best interest rate, you should count on needing a score of 720. If you aren’t there, you might consider doing what you can to improve your credit score.
Planning ahead
First of all, you will need to plan ahead if you want to improve your credit score. It can take 30 to 60 days for your credit score to show improvement; in some cases it might take 90 days. This means that you need to decide ahead of time whether or not you are going to try to buy a home. Then you need to spend some time working on your credit score so that it meets your needs.
Improving your credit score
Making a plan to improve your credit score is a good idea. The first thing you should do is check your credit report. Make sure the information contained in your report is accurate, and correct any errors. If these errors are negative items, correcting them should be good for your credit score. Other steps you can take to improve your credit score include:
- Pay down your credit cards. This will reduce your overall debt, as well as improve your ratio of used debt to available credit, not to mention your debt to income ratio.
- Keep old credit accounts active. Don’t carry a balance, but use the card a little bit and then pay off the balance. Your old cards represent your credit history and the longer your history, the better your score.
- Avoid opening new lines of credit. Multiple credit inquiries made for new credit lines can ding your score and raise red flags for mortgage lenders. Be careful about opening new lines of credit before you go in to apply for a home loan.
You can improve your credit score and get a good home loan. But you have to take a proactive approach.
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July 9th, 2009 at 10:27 am
[…] Know your credit score, and, if needed, take 60 to 90 days to work to improve your credit score. […]