It’s no secret that the best mortgage rates and most favorable mortgage terms generally go to the prospective buyers with the highest credit scores – regardless of down payment amount. That means that if you’ve spent all your time building your down payment but not your credit score, you may run into more hurdles than you anticipated when you apply for a mortgage. The good news is that there is plenty you can do to boost your credit score before you apply for a mortgage. We’ve gathered the top 3 tips for how to boost your credit score here!
Did you know that you are legally entitled to receive one free copy of your credit report each year from the three major credit bureaus TransUnion, Equifax and Experian? This copy of your report won’t include your actual credit score, but that’s ok, because what we’re looking for here are any errors that may be on your credit report and impacting your score. Mistakes happen, but so does identity theft and you don’t want to find out about any major surprises when you apply for your mortgage. Print off a copy of your report and go over it line by line to check for any outstanding or opened accounts you are not familiar with or any negative or black marks on your credit that are in error. A lender reporting that you’ve been 30 days late on a payment when you haven’t been late on can send your credit score plummeting by dozens of points, and could be the difference between an excellent mortgage rate and one you’ll look to refinance later because you’re paying too much interest.
When you’re about to apply for a (generally, very large) loan, it’s best to show your prospective lender that you know how to use, but not abuse, credit that’s extended to you. Your credit score is based in part on your credit utilization ratio and your debt-to-income ratio. An ideal utilization ratio is one that is well below 30% of the amount of credit you have available, and of course, the less credit you utilize, the lower your debt-to-income ratio should be. Paying off cards but leaving them open so you have additional “unused” credit is one of the fastest ways to boost your credit score.
Repeated inquires for credit negatively “ping” your credit score. Although your score might dip only a few points for each card or loan you apply for, when you apply for several loans within a short period of time, this sends a red flag to prospective lenders that you may be experiencing some financial difficulties or instability and may be looking to solve those issues via credit. Although many people end up financing new furniture or home items following a move into their forever home, hold off on any major purchases or applications for new credit cards or loans until after you’ve been approved, and closed on, your mortgage. You don’t want anything getting between you and your lowest mortgage interest rate.