If you are on the hunt for a house but your credit could use some work, that typical homebuyer excitement might be overshadowed by credit score clouds. What if you find that dream property but the bank rains on your parade? Or the buyer accepts your offer but the lender rejects your application? Luckily, if you are still in the initial stages of house hunting, it’s not too late to make some quick changes and boost your prospects of landing that loan.
If you do nothing else between now and signing day, do your very best to pay all of your bills on time. The last thing anyone wants is a surprise drop in credit score right before closing. It can be easy to get caught up in the homebuying process, resulting in mail sitting unopened on the counter. Prevent missing payment mishaps by automating whatever bills you can. Then, add reminders to your calendar for anything that cannot be set to auto-pay.
One of the biggest factors affecting the stipulations of a mortgage is a borrower’s debt-to-income ratio (DTI). This almighty number is exactly what it sounds like: the ratio of a person’s overall debt to their proven income. Unlike that pie-in-the-sky credit score, when it comes to DTI, the lower the ratio goes, the better. This calculation helps lenders decide how at risk an individual buyer may be to default on a loan, so it is imperative to do your best and get this number within a desirable range (under 36% is generally considered ideal).
There are multiple ways to address a high DTI. The first and most direct approach is to pay down or eliminate debt wherever you can. That fancy camper collecting dust in the backyard? Sell it. The last thousand dollars you owe on your student loan? Pay it off.
In the event these options aren’t available, you could also look into how often you make payments on monthly credit card balances. For example, instead of sending payment at the start of each month like so many of us do, split this payment into two separate deposits in order to reduce revolving debt. You might also work to limit credit card spending in the months leading up to the big house hunt.
Another way borrowers are measured is through credit utilization. This number reflects the amount of credit available to an individual versus how much of that credit is actually being used. In general, a goal of 30% credit utilization or lower is desirable. In order to use this measure to positively affect an overall credit rating, simply request to increase your spending limits. More often than not, credit card companies are happy to oblige. Adjustments like these can usually be made over the phone and can quickly alter your credit utilization. Opening an entirely new line of credit or becoming an authorized user on another person’s existing card are additional ways to accomplish this.
Believe it or not, credit reports are not always accurate. You might discover issues from years prior that you are unaware of or hits to your score mistakenly attributed to you as the result of errors. The multiple moves we tend to make throughout college and early adulthood can often result in bills being sent to outdated mailing addresses, and even the smallest unpaid invoice can leave a big stain on your record. Minor dings to your credit history can sometimes have major effects, so be sure to thoroughly review your report and correct any and all issues when possible. A few phone calls and proof of payment are typically all you need to resolve any problems.
Lastly, you might consider enrolling in a credit boost service like Experian Boost or Self. These elective and often free opportunities can sometimes do enough to kick a user’s credit score into a higher bracket, especially if they are on the cusp. There are a handful of similar services, each functioning in a slightly different way in order to help individuals monitor or improve their credit scores, so do your research and pick the one best suited to your situation.
Don’t let worries about your credit affect the exciting buzz surrounding the search for your new home. Put that trepidation to rest by employing some (or all) of these quick and easy credit fixes to bump yourself into a higher credit rating along with a nice new neighborhood.
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