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Your credit score plays a significant role in the homebuying process, influencing your ability to qualify for a mortgage and secure favorable interest rates. Improving your score before applying for a loan can make a big difference in your purchasing power and long-term financial health. Here are some simple, actionable do’s and don’ts to help you boost your credit score and prepare for homeownership.
Do’s: Steps to Strengthen Your Credit Score
1. Check Your Credit Report Regularly
Start by reviewing your credit report for errors or discrepancies that could negatively impact your score.
- How to Do It:
- Request a free copy of your report at AnnualCreditReport.com.
- Look for inaccuracies such as incorrect balances or accounts that don’t belong to you.
- Dispute any errors with the credit bureau promptly.
Pro Tip: Knowing where you stand is the first step toward improvement.
2. Pay Your Bills on Time
Your payment history is one of the most critical factors in your credit score.
- How to Do It:
- Set up automatic payments or calendar reminders to ensure bills are paid by their due dates.
- Focus on consistent, on-time payments, even for smaller accounts.
Pro Tip: Even one late payment can lower your score, so prioritize punctuality.
3. Pay Down Credit Card Balances
Reducing your credit utilization ratio—the amount of credit you’re using compared to your total credit limit—can significantly boost your score.
- How to Do It:
- Pay off high-interest cards first, then work on reducing balances across other accounts.
- Aim to keep your utilization below 30% of your total credit limit.
Pro Tip: Paying balances in full each month is ideal, but even small reductions can help.
4. Keep Old Credit Accounts Open
The length of your credit history impacts your score, so think twice before closing old accounts.
- How to Do It:
- Maintain older accounts, even if you no longer use them regularly.
- Use these accounts occasionally for small purchases and pay them off promptly.
Pro Tip: Closing accounts can shorten your credit history and increase your utilization ratio.
5. Work with a Loan Officer for Guidance
An experienced Loan Officer can review your credit profile and provide personalized advice on how to improve your score.
Pro Tip: Mortgage Investors Group (MIG) Loan Officers specialize in helping potential buyers create a plan to achieve their homeownership goals.
Don’ts: What to Avoid While Improving Your Credit Score
1. Don’t Open New Credit Accounts
Applying for new credit cards or loans can result in hard inquiries, which may temporarily lower your score.
- Why It Matters:
- Each hard inquiry can drop your score by a few points.
- Lenders may view multiple new accounts as a sign of financial instability.
Pro Tip: Avoid opening new accounts in the months leading up to a mortgage application.
2. Don’t Max Out Your Credit Cards
High credit card balances can increase your utilization ratio and hurt your score.
- Why It Matters:
- Maxed-out cards signal a higher risk of financial strain to lenders.
Pro Tip: Pay down balances steadily and avoid unnecessary purchases to keep your utilization low.
3. Don’t Close Accounts with Balances
Closing accounts while you still owe money on them can negatively impact your score.
- Why It Matters:
- It reduces your total available credit, increasing your utilization ratio.
Pro Tip: Focus on paying off balances before considering account closures.
4. Don’t Ignore Debts in Collections
Unresolved debts in collections can significantly damage your credit score.
- Why It Matters:
- Lenders may see unpaid debts as a red flag.
Pro Tip: Work with creditors to negotiate repayment plans or settlements to resolve outstanding debts.
5. Don’t Make Large Financial Changes
Big financial moves, like switching jobs or taking out a large loan, can impact your credit profile and mortgage approval.
- Why It Matters:
- Lenders prefer stability when evaluating your financial situation.
Pro Tip: Wait until after closing to make major financial decisions.
The Bottom Line
Improving your credit score before buying a home is one of the best ways to set yourself up for success. By focusing on good financial habits and avoiding common pitfalls, you can boost your score, qualify for better loan terms, and move closer to achieving your homeownership goals.
