5 Ways to Improve Your Credit Score Before Buying a Home

Credit scores are one of the most important factors in buying a home. Your score determines what mortgage programs are available to you and how high an interest rate you will pay. An extremely low score can prevent you from buying a home. A very good score can save you money on interest. Therefore, it's worthwhile to take the time to review your credit report and look for ways to increase your scores. Here are a few ways to improve your credit score before purchasing a home in Apopka Florida.

1. Correct Credit Report Errors

It's very common for credit scores to contain errors. Perhaps you paid off a loan months or years ago, but your report still shows that debt as unpaid. You may even have debts on your report that don't actually belong to you.

Regardless of what the error is, it's likely to negatively impact your score. You may contact the creditor directly to request a fix. If that doesn't work, you may also contact the credit bureaus (Equifax, Experian, and Transunion) to report the error and request that the mistake be removed.  This often takes time, so it's a good idea to review your report months ahead of your home purchase plans.

2. Reduce Debt Amounts

Credit card use has a high impact on your credit score. You will want to keep balances less than 30% of the available credit limit. For instance, if your credit cards have a total limit of $10,000, your combined running balance should be less than $3,000. 

From a mortgage pre-approval perspective, lenders will consider the minimum payments on your credit cards when evaluating your debt to income ratio. Therefore, the lower your minimum payments, the better your mortgage prospects.

3. Avoid Closing Credit Cards

There's a misconception that having credit cards is a bad thing. This is not necessarily true. What's bad is having high balances on existing cards. If you have cards with low or no running balance, that actually makes you look good. It makes you appear more stable that you are not relying on credit cards. Thus, closing down a card can have a negative impact.

Consider this scenario. You have $20,000 in credit card limits and have a balance of $5,000. You are using 25% of your available credit,... below the 30% maximum that we mentioned above. Now let's assume that you close down one of those cards that happened to have a $5,000 limit. You would then only have $15,000 total credit. With a $5,000 balance, you're using over 33% of available credit. Your credit score will drop as a result of closing down that one card.

4. Make Payments On Time

Payment history is another item with high impact on your credit score. Whether you intend to buy a home in a few months or a few years, you should be diligent about paying on time. This is essential to improve your credit score before purchasing a home. Lenders will also look at your payment history to determine the level of risk in granting you a mortgage. Good payment history will go a long way in helping you qualify.

5. Avoid Applying for New Credit

Promotional offers with credit cards and charge cards can be appealing, but it's best to avoid them if you intend to purchase a home. Although the number of credit pulls has a relatively low impact on your score, it does have some impact. If your credit score is pulled more than twice in the last 2 years by potential creditors, your score will take a hit. Additionally, mortgage companies will question that activity when they review your loan.

Summary of Ways to Improve Your Credit Score Before Buying a Home

Improving your credit score can take time. Be sure to get a head start if you plan to buy a home. By understanding what factors are most important in determining your score, you can make changes to improve your score in a shorter period of time. When you're ready to formally start the home buying process, give our team a call. We service Apopka, Florida and the surrounding area and would be happy to assist you!

  • 214 South Lake Avenue
  • Apopka,FL 32703
  • Office: 407.992.8955
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