Buying a Home? Improve Your Credit Score

You've been house hunting for months and have finally, after much driving, arguing and threatening divorce, found your perfect home. You dive right in and make an offer, but then - ugh - you discover that your credit score is too low to secure the mortgage. Excluding a wealthy family member who swoops in to save the day or a big lottery win, how can you equip yourself to avoid this disheartening experience?

There are, in fact, a variety of options here, but we're going to focus on one today: improving your credit score. The reason that this is such a valuable choice is because your credit influences everything from insurance rates to home loans so taking steps to increase yours will improve your financial experiences in a myriad of ways. Not only are you more likely to get approved for a loan, your interest rates will be lower and you will have more loan options to choose from.

How Can I Increase My Credit Score?

1. Know Your Score: You can't start improving until you know where you're at. Run a free credit report and find exactly where your credit lies. According to BankRate.com, any score above 760 is excellent and no improvement is necessary. However, if you're on the cusp of 700, say at 698, those points might dramatically influence the interest rate on your loan depending on the borrower's "break points."
2. Look for Errors: Check your report thoroughly looking for errors, such as bills reported late that you know you paid on time or debts that should have been removed after the 7 year mark that still appear on your report. Take the time to fix any errors by contacting the debt-holding company and presenting your case.
3. Start Paying: It's important to reduce your debt to income ratio, which means getting some of those credit cards and other debts paid down or off completely.
4. Distribute Your Debt Across Accounts: It might make you feel good to have one credit card paid off while several others are near their max, but you're better off spreading your debt across your accounts. Accounts that are nearly maxed out can reduce your total score so you're better off having several cards at 40% than one paid off completely.
5. Pay on Time: Whether you've been late in the past or not, paying your bills on time every month can help improve your score. Make a spreadsheet, mark it on your calendar or set alarm reminders on your phone to make sure that you send payments in on time.
6. Don't Close Accounts: It's tempting when you finally get that credit card paid off to close the account, cut up the card and do a little dance in your front yard, but don't! Well you can cut up the card and do the dance, but don't close the account. This lowers your total available credit, which hinders your utilization ratio (your debt divided by your available credit).
7. Contact Your Creditors: If you have outstanding debts, get in contact with your creditors and try to work out a deal. Ultimately, they want their money, but many will settle for less if it increases the likelihood that they will get paid at some point. You can ask for lower interest rates or to be relieved of a portion of the debt completely.
8. Consider Rapid Rescoring: This will not help correct actual negatives on your report such as late payments or unpaid debts, but it can quickly correct reporting errors and show balances that you pay off. This service is not free and generally costs around $50 for every account that has to be rescored.

I work closely with a lot of buyers and lenders and it's always disappointing to see clients miss out on their dream home over a poor credit score. If you're thinking about buying a home, start improving your score right now. If you're interested in buying or selling a home in the East Lansing or Greater Lansing areas in Michigan, feel free to get in contact with me at MyRealtorRob. As an East Lansing Realtor, I can assist you in securing a pre-approval and answer questions you might have about home financing.



You Can Cut'Em, but Don't Close'Em!