How to Increase Your Credit Score and Become a Better Candidate for Mortgage Approval
Your credit score is just one of the factors your mortgage lender will use to determine whether you qualify for financing. The problem is, every lender uses different methods to determine your credit worthiness. So, in some cases, a minimum score is difficult to determine for conventional loans.
1. Pay Down Your Credit Balance and Pay On Time. If possible, pay off the entire balance every month. Set up automatic payment with your bank to pay off the full balance automatically. Use no more than 30% of your credit limit. One of the biggest ingredients in a good credit score is simply month after month of on-time payments.
2. Gather up all credit cards on which you have only small balances and pay them off. Then select one or two cards that you can use for everything. Avoid store credit cards.
Related article: Best Debt Consolidation Strategies.
3. Leave old debt and good accounts (debt that you've handled well and paid as agreed) on as long as possible This is also a good reason not to close old accounts where you've had a solid repayment record.
4. Shop for mortgage rates all at once. Too many credit applications can lower your score, but multiple inquiries from the same type of lenders are counted as one inquiry if submitted over a short period of time.
Related article: What is Annual Percentage Rate (APR)?
5. Don’t open new credit card accounts before applying for a mortgage. Too much available credit can lower your score.
6. Do not do anything that could indicate current or future money stress, such as missing payments and suddenly paying less (or charging more) than you normally do, taking out cash advances, or charging at a pawnshop or divorce attorney.
7. Correct any errors in your credit report. Mistakes happen, and you could be paying for someone else’s poor financial management. It is recommended that you check your credit report every 6 months to ensure all information is correct, and that no one has stolen your identity.
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Related article: Mortgage Basics