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5 Important Changes You Need to Make to Your Credit Before Buying a Home

Written by Jimmy Rustling

When you take the time to plan out a strategy for buying a home that is perfect for your family you can get the best property tax rate, low mortgage interest rates and put down a down payment big enough to make your payments more than reasonable. This is a major reason why people wait until the time is right before making an offer on their dream home. On the other hand, there’s another vital reason that you can probably stand to wait a little while longer before purchasing a home, and it has to do with your credit score and financial wellness. Many real estate shoppers do searches on how to increase your credit score by reducing debt prior to locating a great home simply because they know how much can be saved. Here are the five most critical changes that you can make to your credit that will make homeownership more pleasant and rewarding.

Avoid Applying for New Lines of Credit

Once your credit score starts going up, attractive new offers for credit cards are liking going to be sent to your home. Even if you like the idea of getting credit cards that have bigger credit lines with better interest rates, the time before you anticipate buying a home is a precarious one. It is better to hang on to your aged credit cards because it shows that you enjoy maintaining good relations with your creditors. Consider asking your existing credit card issuers for an interest rate reduction or other benefits that will help you to reduce their balances. Also, avoid taking out any personal loans or financing purchases that are unnecessary as this will only make your debt to income ratio less attractive.

Pay Down Your Debts Starting with the Lowest Balances

For those with multiple debts, it probably makes sense to pay down the balances that have the biggest dollar value. After all, you will have much more money available for a down payment on a house after you get your car loan paid off. Contrary to this belief, the best way to pay down debt is to start with the most obvious and smallest account balances that you owe. It won’t seem like it at first, but you will actually end up with more money saved and your credit will also improve faster. If you can manage to get all of your credit cards with low balances paid down or take care of an installment loan once and for all, you will see a fast and big improvement in your credit scores.

Refinance Your Auto and Student Loans

Any lines of credit that you have open now are going to have to be well managed if you expect to get your home loan application approved. Take those high interest auto loans and get them refinanced if you can, which will make the total amount that is due on your loans a lot lower. You want to watch your debt to income ratio before you get into the home buying market. Creditors need to know that you have the ability to pay your home loan comfortably, and having a large student loan balance can be hurtful in a way. If student loan consolidation is an option, make sure that you do this right away. You can do some research and choose between various student loan refinance companies to consolidate your student debt.

Remove All Past Collections

Having any type of outstanding collection, judgement, or past due account will absolutely stop you from getting a mortgage application approved. Even if the accounts in question have a small dollar value, mortgage companies are in the business of making guarantees and they aren’t in a rush to give out loans to people who have a hard time honoring past agreements. This is why you should take care of all past due accounts, including those that have gone into collections before you start the mortgage pre-approval process. A history of late payments on your credit report can make getting a home loan a little harder, but eliminating all collection accounts will make the dream of home ownership a reality.

Have All Errors Corrected

You might not think that having a wrong past address on your credit file could hurt you, but remember that lenders look at every piece of information contained therein to build profiles on their customers. You never know who you could accidentally be linked through via inaccurate information on your credit reports, including past addresses and employers. There could be someone with a similar name to you with terrible credit, so you would never want to be mistaken for being the same person. Get all inaccuracies removed from your credit report so that creditors have all of the right information about you upfront. This change may not help to increase your credit score, but it can aid you in getting a faster approval with less red tape.

There isn’t just one method of repairing or improving your credit score that is best for getting a home loan application approved at a reasonable interest rate. You might want to make all of the changes listed above, wait a few months to see how much your credit score changes, then compare the type of offers and interest rates that you receive.

What can be said definitively is that those who are most fully engaged in the home buying process are those who will be most satisfied with the outcome. Just as you would take your time when shopping for a new house to call yours, you should also make small tweaks to your credit report, then wait to see what the result will be. A few extra points earned on your credit reports might lead to higher loan amount approvals and lower APRs. Begin working on your credit at least six months before you seriously begin shopping for a new home and you will have a great credit score as well as plenty more first hand information about how to get the best home loan terms.

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About the author

Jimmy Rustling

Born at an early age, Jimmy Rustling has found solace and comfort knowing that his humble actions have made this multiverse a better place for every man, woman and child ever known to exist. Dr. Jimmy Rustling has won many awards for excellence in writing including fourteen Peabody awards and a handful of Pulitzer Prizes. When Jimmies are not being Rustled the kind Dr. enjoys being an amazing husband to his beautiful, soulmate; Anastasia, a Russian mail order bride of almost 2 months. Dr. Rustling also spends 12-15 hours each day teaching their adopted 8-year-old Syrian refugee daughter how to read and write.