How to Improve Your Credit Score So You Can Buy a House

Anyone can buy a home with a little help from their friends, but for many prospective homebuyers, it’s not as easy as it sounds. If you’re in the market to buy a house but have bad or limited credit, the process gets even more challenging. However, with some patience and some smart strategies, you can improve your credit score so that you can qualify for a mortgage. In this article, I'll discuss how you can improve your credit score so that you can one day own a home and break the rental cycle.

Check Your Credit Score

Before you can even think of buying a house, you have to know where you currently stand with your credit score. If you don’t know your score, you’re missing out on a great opportunity to improve it. Credit scores are determined by a number of factors, including your credit history, payment history, and credit utilization. A credit score is calculated based on these factors, along with your credit mix (30% to 40% is typical). Before you start trying to raise your credit score, you should first check your credit report and make sure there are no errors. You can get a free copy of your credit report anytime through the credit agencies’ website. Once you have your report in hand, you can check for errors and inaccuracies. Credit scores range from 300 to 850, and you can check your score for free at https://www.annualcreditreport.com.

Get a Credit Report

The only way you can truly understand your financial situation is to have all three of your financial reports in hand— your credit report, your bank statements, and your housing payment. Credit reports are like tape recordings: The wrong information can be heard, but you can’t see what’s on them. When you get a copy of your credit report, you can pull up the three different agency reports, then circle and highlight any inaccuracies. You can order a copy of your credit report from each of the three credit reporting agencies: Equifax, Experian, and TransUnion. Once you order your reports, keep them in a safe place, as it is your only free copy of that report for the year. If you find something inaccurate in your report, it’s a good idea to write a note next to the error to help you remember. For example, if you find an error in your credit report but it’s a minor one, you can write a note next to it saying, “Minor Credit Report Error.”

Understand How Scores Are Calculated

You’ve now checked your credit score and you have received a copy of your credit report. It’s time to move on to the next step: making sure that you understand how your credit score is calculated. Public information lenders like banks and credit unions get information about you from your credit report. This information, part of which includes your credit report, is what they use to determine your credit score. Your credit score is based on this combination of information. Your credit score can play a major role in determining the interest rate and the loan amount that you’re approved for. If you can increase the amount of positive information, you can increase the amount of the loan and lower the interest rate.

Try to Improve Your Scores

Now you’re ready to start making a difference in your credit score. Here are a few things you can do to try to improve your credit score:

- Make on-time payments: The majority of credit score calculations are based on payment behavior. If you migrate to an on-time payment model, you can improve your credit score.

- Pay down high-interest debt: If you pay off high-interest debt with a lower-interest loan, this can also improve your scores.

- Keep your credit utilization ratio below 30% of your credit limit: The majority of your credit score is determined by your payment history. Make it your goal to keep your credit utilization below 30%.

Boost Multiple Scores at Once

Once you start improving your credit score, you’ll discover that it’s much easier to make progress than you thought it would be. If your credit is largely based on credit card debt and your credit mix is 40% credit cards, you could try to pay off your cards first, then move on to paying off the high-interest debt on which your credit mix is largely based. - Bring each credit card balance down to 30% or less: This will boost your available credit and improve your utilization ratio, which will also boost your score.

Don’t Delay Closing Until You Reach Peak Scores!

Once you’ve made progress and improved your credit score, don’t wait to close on the house. You can’t improve your score if you don’t have a home to show for it. If you can close before your credit reaches its lowest point, you’ve taken a big step in the right direction. Once you close, make sure you maintain your new, improved credit score. Utilize the snowball method. Pay off any high-interest debt. Keep your credit utilization at 30% or less. You can’t make too much of an effort to stay on top of your credit score, as it’s something you’ll have for life.

Simply put, if you want to buy a house, you must have a decent credit score. The good news is that it’s possible to get there if you take the right steps. While there’s no guaranteed method to raise your credit scores, these tips can help you make progress toward reaching your goal. The only way to truly understand your financial situation is to have all your financial reports in hand: your credit reports, your bank statements, and your monthly debt payments. Once you have accurate reports of your entire financial situation, you can start to improve your credit scores. Want to see what you can qualify for downpayment wise? Go to https://www.homedownpayment.org and see!