Preparing Your Credit Score Before Buying a Home
Many people don’t think about the impact their credit score can have on the home buying process until they are eager to buy a home.
When applying for a mortgage, the bank relies on several factors to determine your creditworthiness, like your credit score, payment history and your current debt. One of the easiest and fastest ways to impact this process is through your credit cards.
Check out the tips below and get ahead of the game by improving your credit score before applying for a mortgage:
- Keep all payments current, pay off card balances if you can: Look at statements for all of your credit cards, and to start, pay off any amounts that are listed as “Past Due” immediately. Banks view balances as outstanding debt, which factors into debt-to-income (how much debt you have vs your monthly income). Obviously, the goal is to have the least amount of revolving debt possible by the time you apply for a home loan, so pay off your cards completely if you can. On a side note – when in the process of buying a home, never close a credit card or open a new revolving credit account before talking to your lender, paying off a credit card is terrific, closing it or transferring a balance to a new card can have a negative impact on your credit – and your chances of buying a home.
- Reduce your credit utilization ratio. In a perfect world, we would all pay off our cards, but sometimes that’s just not possible. Your credit utilization ratio is your current balance compared to your credit limit. Ideally, your ratio shouldn’t exceed 30%. There are two ways to address high ratios: request a limit increase or pay down your balance. Bottom line is: if there’s only so much money to go against cards, it may be a better move to pay a few cards partially vs. one of your cards completely.
- Put those cards away! Sounds simple, right? It really is! To ensure that the balance on your credit report appears as $0, don’t use your credit cards for 45 days. Plan for this period to use your debit card for purchases and to work with a comfortable budget that doesn’t require credit.
Are you ready to prepare for the home buying process? Give one of our seasoned agents a all now at 480-270-5355. Of course, these are just a few of the tips and tricks we can offer for a smooth home buying process. We’re happy to answer your questions, and even refer you to a trusted lender to get you started.