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Looking to Boost Your Credit Score to Buy a House?
Whether you’re a first-time homebuyer or looking to upgrade, you’ll want to make sure your credit is in good shape before you buy a house. Why? Because along with your down payment and income, your credit score is one of the biggest factors that determines your ability to get a mortgage.
Having a good credit score also means you have more power in negotiating with lenders to get a good interest rate. In some cases, with a good credit score, you may even be able to eliminate PMI that might otherwise be required.
Basically, your credit score is one of the most important tools when it comes to buying a house. If you’re ready to boost your credit score to buy a house, here are the best strategies.
Note: If you are not sure where your credit score currently stands, I recommend Credit Sesame. You can sign up for a free account and receive monthly updates on your score.
Keep all your lines of credit steady
This is one of the most common misunderstandings about your credit score. I have talked to so many people who mistakenly closed one or more of their credit cards before they buy a house.
Keep all your credit cards open, because closing an account can temporarily lower your score. And applying for any new lines of credit – including a car loan, student loan, or credit card – can also temporarily lower your score.
Unless you’re not buying a house for at least another year, the best thing to do is keep all your accounts open, paid, and work with the ones you have rather than opening anything new.
Pay off your credit cards
Your credit score is partially determined by how much balance you carry over on your credit cards from month to month. One of the best ways to start raising your score is to pay off your credit card balances.
Even if you can’t completely eliminate your balance, lowering the overall amount you owe will start to boost your credit score over time. The other advantage of this strategy is that as you pay off your debts, you’ll free up more of your income to save more for a down payment.
Review Your Credit Report for Accuracy
Reviewing your credit report is one of the most essential research steps you should take before buying a house. For this, you can useCredit Sesame. In addition to giving you an estimate of your credit score, it shows you red flags that might be affecting your credit score. It also coaches you on the best ways to boost your score over time.
While this is a great tool for getting ready to buy a house, I would recommend that everyone take the time to check their credit score on a regular basis. Your bank, credit card, or budgeting tool may also give you regular updates on your credit score.
If you see something on your credit report that looks like an error, or perhaps the result of fraud, report it right away. Getting errors on your credit report corrected can have a huge positive impact on your overall credit score!
Request a Credit Limit Increase
One factor that affects your credit score is how much borrowing power you have. One easy way to boost your score is to reach out to your existing credit card accounts and request an increase in your credit limit.
The key to this strategy is to resist the urge to spend more on your credit cards; the higher credit limits will only boost your score if your overall credit usage stays low. This is a great strategy because it usually only takes a month or two for you to see the positive impact on your credit score.
Set Up Automatic Payments
Making a late payment even once can negatively affect your score. To avoid late payments from impacting your score, set up as many automatic payments as possible. This includes payments for your loans and credit cards of course, but also for any other payments that can impact your credit score.
This includes your utilities, internet, and even your cell phone service. If you have auto payments set up, you’re much less likely to miss a payment, and your credit score will thank you.
Finally: Shop Smart
Again, when it comes to a mortgage, your credit score is only one piece of the puzzle. Other important factors include your down payment and your overall financial picture (income, debt-to-income ratio, etc).
The best mortgage options for you may be found not just through a traditional lender, but through more progressive lenders like SoFi. As you’re building up your score, take the time to shop around and see what types of mortgages are out there and buy the house you’ve been dreaming of!
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Sean Bryant
Sean Bryant created OneSmartDollar.com in 2011 to help pass along his knowledge of finance and economics to others. After graduating from the University of Iowa with a degree in economics he worked as a construction superintendent before jumping into the world of finance. Sean has worked on the trade desk for a commodities brokerage firm, he was a project manager for an investment research company and was a CDO analyst at a big bank. That being said he brings a good understanding of the finance field to the One Smart Dollar community. When not working Sean and his wife are avid world travelers. He enjoys spending time with his two kids and dog Charlie.
