Your Credit Score…..How Do You Rate?
Thinking of making a home purchase within the next year? Your ability to secure a mortgage hinges greatly on your credit score! By familiarizing yourself with the credit report basics you can avoid the pitfalls and instead learn how to maximize your potential for a higher credit score.
It is important to be aware of what is on your credit report. Take advantage of your free annual credit report that you are entitled to receive by each of the three credit bureaus…..Transunion, Equifax, and Experian.
Practice these 6 steps to manage your credit score and prepare to purchase a home:
- Request a copy of your credit report every time you get a credit inquiry. It will allow you to site inaccuracies immediately. Correct any errors by reviewing your credit report. This should begin several months before your purchase; longer if your credit is in greater need of repair. Dispute any inaccuracies by filing a dispute with the reporting agency.
- Pay bills on time making at least the minimum payment when due. Pay it off in full each month whenever possible. You can use your calendar to set notifications.
- Eliminate credit card balances when possible, but if not possible, keep your balance down to 30% of the approved credit amount. It may help to achieve this by asking for an increase of your credit limit.
- Conventional loans will need to consider the recent activity (within the last 12 to 24 months) on at least three different lines of credit. Consider opening another Visa or Mastercard account….ONLY if you need to show more credit lines but NEVER within six months of applying for a mortgage, which will temporarily lower your credit score.
- Leave old debt on your report. You may feel the need to clean up your credit report by closing old accounts, but this is a mistake. The zero balances are a positive reflection and can add positive points to your score. Keep it an active tradeline account by using the card periodically but paying the balance in full.
- Another common mistake is the purchase of big items when you are preparing to purchase. If new charges inadvertently change your credit score or by purchasing you have reduced your liquid asset balances, it may create issues in lending especially if done while in escrow. This is a big No-No.