The elusive excellent credit score. It takes persistence and time to attain, but it’s worth the extra effort. A high credit score qualifies you for mortgages with the most favorable terms.
Whether you’re building credit from scratch or repairing your credit after a few bumps in the road, here are a few steps you can take to improve your score before purchasing a home.
When it comes to credit, the longer your positive history, the higher your score. Patiently waiting several years to build good credit won’t help you buy a home any time soon. That’s where credit piggybacking may be useful.
If your parent or spouse has a longstanding credit card account with an excellent payment history, ask them to add you as an authorized account holder. The account will appear on your record if the credit card company reports authorized cardholders to the bureaus, and you can reap the benefits of their positive history.
Make sure to use this method with someone you trust. Should the primary account holder fall behind on payments, negative remarks on the account may impact you as well.
There are several credit scoring methods, but FICO scores are what we use to qualify you for a mortgage. Credit utilization is how much of the total revolving credit available to you that you’re using and accounts for 30% of your FICO credit score.
Here’s how credit utilization is calculated: If you have two credit cards with a credit limit totaling $10,000 and $5,000 worth of charges on the cards, you’re using 50% of your available credit. Bring your credit utilization below 20% and you may see score improvement.
Mistakes and unique circumstances happen. If you miss a payment but have a track record of paying on time recently, a creditor may be willing to give you some leniency especially when you need a clean record for something important like buying a home.
Your success with this method will depend on the extent of your negative history. Adverse history like bankruptcy won’t disappear overnight. But, sending a letter to request removal of one or two bad remarks they reported to the bureaus is worth a shot.
If you have unpaid debts in collections, try to pay them off or come to a settlement agreement for a lesser amount. The removal of accounts in collections may boost your score a few points.
You should also check the dates of your delinquencies. Delinquency stays on your record for about seven years. If you have a debt on your account over seven years old, you can dispute it with each credit bureau and have the record removed.
Improving your credit history will take dedication. You may exhaust all options and still have a credit score that needs work. That doesn’t mean you can’t qualify for a mortgage. A very low debt-to-income ratio may give you a leg up in the application process if your credit is less than perfect.
Interested in learning more about your mortgage options or prequalifying for a home loan?