If you are about to apply for a mortgage to buy a home, you probably think about your credit score and if it is enough to qualify for the desired mortgage amount. There are several things you can do to help your case. Besides getting mortgage-approved, a good credit score is also helpful to lock in low-interest rates. Here is how you can prepare and polish up your credit score.
Check your credit history.
First, check your credit history to see where you stand. The lender will certainly take a peek into your finances, e.g., your income and if it is enough to cover a mortgage, if you had any loans in the past, the amount you borrowed, if you paid on time, etc. Checking your credit history will help you get an overview of your finances before the lender does and help you figure out what you can do to improve your credit score.
Also, check your credit report for mistakes, and inform the credit bureau if certain information is inaccurate. After all, you want the lender to have reliable data when they run their checks.
Don’t be late with your payments.
Timely payments are a crucial factor in mortgage approval, and there are several approaches you could use to avoid being late on payments. If you have a hard time keeping up with your financial obligations, you could, for example, set up automatic payment for your bills whereby the payments due would be automatically withdrawn from your account, and you wouldn’t have to worry about it.
Pay more than the minimum on your credit card debt
While automated payment is great for utility bills and other expenses, it does not have the same effect on credit card debt payments. It’s efficient for the minimum amount, but your goal is to pay more than the minimum to reduce your debt faster and secure lower interest rates.
Lower your credit utilization ratio
Reducing the debt you owe will lower your credit utilization ratio, which will make you look good at the lender’s office. Credit utilization refers to the amount of your credit limit and how much of it you spent. It’s recommended not to go above 35% of your credit limit. This means if your limit stands at $2,000, you should not exceed more than $700 of that amount. This will show the lender that you are a reasonable spender and that they can count on you to repay your mortgage.
Go through your credit card accounts.
Reducing credit card debt requires discipline and effort, but it’s better to start sooner than later. The first step is to check all your accounts and see how much debt you have collected on each and how high the interest rates are. Next, you will have to create a repayment plan, and the best is to start with repaying the one where the interest is the highest. Be consistent, and don’t be late on your payments. You may set up a monthly reminder or ask your bank if they have a system to remind clients when payments are due.
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