Real estate markets have been quite hot in recent months and home prices continue to gain ground. Many people are looking to purchase homes, often for the first time. Anyone looking to buy a home should first build up their credit score, however. Tyler Keith Andrews, a credit rehabilitation expert, and president at CreditIQ, offers advice.
“A high credit score will keep interest down and can reduce your overall payment,” Tyler Keith Andrews argues. “The difference of twenty or thirty points on your credit score can make a huge difference, potentially cutting interest by a point or more.”
The higher your credit score, the more likely you are to be approved for a mortgage. While a credit score of 620 is often seen as the minimum for a traditional mortgage, the higher the better. That’s especially true given the COVID-19 pandemic. Economic uncertainty has caused some lenders to raise minimum credit score requirements.
So how can you raise your credit score? Tyler Keith Andrews, President at CreditIQ, offers some insights:
“First, you’ll want to lower any credit card balances you have. It’s best to make sure that you’re not using more than 30% of your credit limit. Reducing your credit card balance may improve your credit score in a matter of weeks or even days.”
Interestingly, one way you can sometimes increase your credit score and lower your credit utilization is to take out bigger credit lines and more credit cards. This might seem counterintuitive, but if increasing your credit limit decreases your credit utilization from 50% to 25%, you might enjoy a big boost.
“Increasing your credit limit is often smart,” Tyler Keith Andrews says. “However, there are some potential pitfalls. Hard credit checks can impact your score, for example. It’s smart to work with financial experts to figure out the right approach given your situation.”
It’s also smart to figure out when your credit issuers, such as your bank, report payments to credit bureaus. If the bank reports a few days before your billing cycle ends, and you tend to pay right on the due date a few days later, you may appear to be carrying a high balance even though you’re paying all your bills on time.
Anyone looking to take out a mortgage should get copies of their credit report from the three major agencies. Then, you should closely examine each report to see if there are any discrepancies or issues.
In some cases, borrowers have paid off a debt, but that isn’t accurately reflected on the credit report. Sometimes, people are the victims of fraud and someone else has taken out a credit card or loan in his or her name.
“Analyzing your credit reports can take a bit of work,” Tyler Keith Andrews, President at CreditIQ says. “But if you uncover something you can dispute, it could boost your credit score by quite a bit.”