Homeownership is a dream for many Americans, and maybe it’s one of yours as well. Making this dream a reality requires hard work, dedication and the proper preparation. You must figure out where you want to live, what type of home you desire, what you can afford and also how your credit rating may impact your home-purchasing goals.
Your credit rating can play an important role in the home buying process, and your creditworthiness could also affect the amount that you can borrow, the interest rates you will qualify for and your ability to obtain a mortgage loan in the first place.
‘A consumer’s credit is one of the biggest factors that goes into the mortgage-application process,’ says Eric Hamilton, President of Vanderbilt Mortgage and Finance, Inc. ‘Before applying for a loan, it is crucial to get your credit in the best shape you possibly can.’
To help you build good credit and increase your ability to obtain better loan terms, Vanderbilt Mortgage and Finance, Inc. offers these tips for improving your credit:
Pay your bills on time
Late or missed payments on any of your credit accounts, such as credit cards, mortgages and other loans, could cause a drop in your credit score. To prevent this, make your payments on time. Making additional payments whenever possible and paying extra toward the principal balance will also help to keep a good payment history and decrease the payoff timeline. Using an Extra Principal Payment Calculator tool can also help you calculate the savings that come with paying extra – generating additional motivation to do so.
Minimize any outstanding debt and keep existing debt manageable
Paying your statement balances in full instead of letting debt accumulate can improve your credit scores, which may result in better terms being offered from lenders. Lenders often check your credit report when you apply for a loan and measure the amount of debt you’re carrying against the loan amount they’ve requested. Excessive debt is one of the factors that could cause a lender to decline your application.
Avoid applying for unnecessary credit
Credit applications can appear as inquiries on credit reports, which may suggest to lenders that an applicant is taking on additional debt. Be aware of advertising or sales promotions that offer purchase discounts if you apply for a credit card. Even these cards could show up as inquiries on your credit report. These inquiries remain on credit reports for two years. Instead of applying for additional credit, use your existing lines of credit to showcase your responsible credit management by paying bills on time and paying off the debt quickly.
“There are a lot of steps you can take to improve your credit, but it’s important to remember that credit scores don’t change overnight,” says Hamilton. “It takes time to increase your credit rating, and while it may feel like a slow-moving effort, it is well worth the wait when you get to open the door to a home of your own for you and your family.”