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Since mortgage lenders are businesses, first and foremost, they need to determine ahead of time whether you are creditworthy before approving a home loan. To do this, they need to check your past credit history and look at your current financial situation to reduce your risk on what is typically the most expensive purchase a person will make in their lifetime. One of the tools they use to make this decision is your credit score, and if it’s not where you want it, there are some things you can do to raise your score.
Contrary to what you may have seen in magazines, in your email box, and on late-night television, there really are no quick fixes that will fix your credit right away. To do this you will need time and continuous effort.
When calculating a credit score, mortgage lenders examine five sections of your credit report. They look at your past payment history, how much you currently owe, how long you’ve had credit, the types of credit you’ve had, and any new credit you’ve applied for. If you have one or two weak areas on your report, here are some tips for improving your credit score.
First, try to keep your debt load to a minimum. A high debt-to-income ratio will drive down your credit score. If you have debt, pay it off instead of shifting from credit card to credit card. However, if you have one card with a lot of available credit and the other card is nearing the limit, it may make sense to transfer part of the balance. You don’t want a credit card with a balance near the credit limit. Any maxed out credit line lowers your score dramatically.
Next, stop making late payments. Some people are apathetic about paying bills, but if you have bills due, pay them and keep them current. If you have bills that you know you will have trouble paying, contact that creditor immediately and set up a payment plan that will help keep the negative information off your credit report. If you have past due comments on your credit report, contact the lender and ask them to remove the negative report as you are now current.
There’s not much you can do about the length of your credit history. You can only be sure that from this moment on your history will be perfect. Time is time, and there is no way to change it or speed it up.
If you decide to open a new fee account, do so sparingly. Do not open multiple new accounts in the hope of increasing your score. In most cases, new credit won’t raise your score, and may actually do more harm than good. If you’ve had payment problems in the past but are more stable now, it will help to open some new accounts, but if you get one, pay it off on time and don’t max it out.
If you can, try to have a mix of different types of debt, such as installment loans (car loans, for example) and credit card debt. Loans with fixed payments can help raise your score if you live up to your part of the agreement, but you don’t want too many of these types of loans, because fixed payments will lower your debt-to-income ratio. .
There are ways to improve your chances of getting a home loan, even if your past history is less than stellar. However, there is no quick way. It will take time and concerted effort to raise your credit score to be considered a good risk by your lender.
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