Lenders look at your credit score before anything else. That three-digit number tells them a lot. If it’s not a great number, they may turn you away or give you less than optimal mortgage terms.
Do you want the best mortgage terms? Raise your credit score before you apply for a loan.
It’s not as hard as you think. It overwhelms many people to think of their credit score, but like anything else in life, with a little knowledge, you can make changes.
What’s your Credit Score?
First, find out your credit score using these two steps:
- Pull your free credit report here. This is only a report, not your credit score, but use it to see what you need to fix.
- Get your free credit score from Experian, or your local bank or credit card company. They all provide free credit score access. It won’t be exactly the score lenders see, but it gives you an estimate.
Raising your Credit Score
Your credit score ranges from 300 to 850. Any credit score lower than 629 lenders consider ‘bad’ and ‘excellent’ credit starts at 720. If you fall in the ‘bad’ or somewhere in between, increase your credit score using these tips.
- Pay your bills on time – Your payment history is 35% of your credit score. It’s the largest portion and has the most impact. If you have even one bill that’s over 30 days late, it hurts your score. Get all bills current and continue paying them on time to get a higher score.
- Lower your utilization rate – The amount of outstanding credit versus your credit lines is your utilization rate. The magic number is 30%. For example, if you have a $1,000 credit line, don’t have more than $300 outstanding at once. Credit utilization is 30% of your credit score. If you have a much higher rate, pay your balances down or off completely.
- Don’t open new accounts or close old accounts – Your credit age or length of credit history makes up 15% of your credit score. Try keeping your credit as is – don’t apply for new credit (until you’re ready for a mortgage) and don’t close old credit card accounts. Keeping the old accounts open helps lengthen your credit history and increase your score.
- Keep a good credit mix – Try to balance your credit between installment and revolving debt (credit cards). If you have all revolving debt, your credit score drops. It’s too risky. Having a good balance between installment and revolving debt shows you can manage different debts.
- Get errors fixed – Between human error and identity theft, your credit report may have mistakes. When you pull your report, go through each line. If you notice any errors, write to the credit bureau right away. Let them know of the error and provide the evidence to prove it. The credit bureau has 30 days to respond and/or fix it.
While you don’t need a ‘perfect’ credit score to get a loan, a good credit score gets you the best loan terms and the lowest interest rates. Work on your credit score 6 months to a year before you apply for a mortgage for the best results.
