Are you thinking of buying a home but worried your credit score is holding you back? Having less-than-perfect credit does not have to stop you from getting into your dream home.
Know Where Your Credit Stands Before You Begin
It’s never too late to start improving your credit score. However, before you begin, you first need to know where you stand. It’s important to regularly check your own credit reports to ensure that they are accurate and up-to-date.
The three nationwide credit reporting agencies (Equifax, TransUnion, and Experian) offer free weekly access to credit reports. You can access these by visiting annualcreditreport.com. It is important to access each bureau separately through this portal so you can investigate each report individually for errors. As you pull these reports, you might worry that checking your own score will hurt your standing. However, there is a big difference between you checking your score and a lender checking it.
Expert Tip: Do not get your credit score through annualcreditreport.com. Not only will you be charged if you try to obtain your score, but this score also uses a different scoring model than what your lender uses.
Understanding the Difference: Soft Pull vs Hard Pull
| Inquiry Type | Soft Pull | Hard Pull |
|---|---|---|
| Examples | Background checks, credit monitoring, employer pulls, and annual credit report. | Auto loans, mortgages, and credit card applications. |
| Effect on Your Score | No, there is no effect on your score. | Yes, this may result in a small, temporary dip. |
Review Your Report and Dispute any Inaccuracies
Once you have your reports in hand, your first quick fix isn’t about paying bills, it’s about finding mistakes. When reviewing your credit report keep an eye out for inaccurate information that may be negatively impacting your score. This could include accounts that do not belong to you or incorrect payment statuses.
If you find inaccuracies, you can initiate an investigation with each bureau to have them corrected. Cleaning up your report provides a great starting point to ensure a maximum impact on your scores.
Top Strategies to Boost Your Credit Score
Whether building credit from scratch or re-establishing yourself after some financial mishaps, here are some of the most effective ways to start:
Make On-Time Payments: Payment history accounts for 35% of your FICO® Score. This makes it the most important factor in determining your creditworthiness. If you are having trouble remembering deadlines, consider setting up calendar reminders or auto-pay. Always schedule at least the minimum amount due each month.
Lower Your Credit Utilization: The amount you owe compared to your total credit limit accounts for 30% of your FICO® Score. While many experts suggest keeping your utilization below 30%, it is best to keep it as low as possible. If you have high balances, prioritize paying them down. You can also make multiple payments throughout the month to keep the balance low before your statement date.
Do Not Close Seasoned Accounts: Credit history makes up for 15% of your score. When you close an old account, you lose that account’s available credit and its history. While loan accounts close automatically when paid off, credit cards can stay open indefinitely. Even if you do not use a card often, keep it open and active to maintain your score.
Diversify Your Credit Mix: Your credit mix makes up for 10% of your score. Lenders like to see that you can manage the different types of debt, such as credit cards and installment loans (like an auto loan).
Note: You should never take on unnecessary debt just to build credit, but a healthy variety helps.
Limit New Credit Applications: Opening new credit lines accounts for 10% of your score. Every time you apply for new credit, the lender will run a hard inquiry. To protect your score, limit how many new accounts you open while preparing for a mortgage.
Expert Tip: When shopping for a mortgage a mortgage, multiple inquiries generally have no additional effect on your score for the first 30 days. This allows you to compare rates without penalty.
What Not to do During the Mortgage Process
Now that you have your credit in check, it’s time to start the mortgage application. Once you start the process, your credit will be in a sensitive state. To ensure a smooth closing, follow these tips:
Avoid Large Purchases: Do not buy a new car or furniture on credit until you have the keys to your new home.
Do Not Change Jobs: Stability is key for lenders. A sudden change in employment can require a new review of your file.
Consult Your Lender Before Paying Collections: Sometimes paying an old collection can actually cause a temporary score dip by “reactivating” the account. Always talk to your loan officer first.
How We Can Help: Rapid Rescoring
At Southern Trust Mortgage, we know that timing is everything. If you pay down a balance or fix an error, you do not always have to wait 30 to 45 days for the bureaus to update. Our Credit Specialist, Mike McNamara, can often perform a Rapid Rescore. This process can update your credit profile in just a few business days, potentially helping you qualify for a better rate immediately.
You’re One Step Closer to Buying Your Dream Home!
Having good credit will open many doors when you apply for a mortgage. However, do not let less-than-perfect credit stop you from starting the journey. Southern Trust Mortgage is committed to helping borrowers reach their goals. Our credit enhancement specialist is available to help you improve score and get you into your dream home.
Important Reminder: Protect your privacy before starting the mortgage process visit optoutprescreen.com or call 888-567-8688 to opt out of receiving unsolicited credit offers, eliminate junk mail and prevent you from being sent pre-approval letters in the mail.
The safety of your information is important to us. Optoutprescreen.com is a secure website and is the only internet website authorized by Equifax, Experian, Innovis, and TransUnion for consumers to opt-out of firm offers of credit or insurance.
