10 ways to improve your credit score

Last Tuesday, we wrote about how important it is to have high credit scores to purchase a home. Today, we’ll outline a summary of the main points from this list of 10 ways to improve your credit score from Inman.com.

If your score is lower than you’d like, these are good suggestions for how to help hike it back up, especially if you’re thinking about buying a new home:

1. Always pay on time

No lender likes to lend money to an individual who has a repeated record of missing his or her payments. Not to mention it will end up with a lower FICO score.

2. Keep your credit owed within limits

A good ratio is not having your unsecured credit outstanding above 50 percent of your annual salary. If you have $10,000 as your limit, then it is wise to restrict your statement amount to $5,000.

3. Always pay your bills on time, in full

This is one of the most important tips to improve credit score: On-time payments improve your credit score tremendously.

4. Use two credit cards if you are a definite credit card spender

This is good and bad advice at the same time. FICO does not consider spending money on two credit cards as one. But if you have two credit cards, you can keep your usage percentage in control.

5. Maintain a good mix of good and bad loans — AKA, a healthy credit mix

Home loans and business loans are considered good loans. Personal loans and credit are considered bad loans.

6. Pay high-interest loans and small loans first

It is a prudent decision to pay your home loans over longer periods. Pay off your personal loans, credit cards and private loans first, as they tend to have a higher interest. Home loans, on the other hand, are just 9 percent to 11 percent, but they build an asset.

7. Close your unwanted savings accounts

Many people tend to abandon their savings accounts without closing them. If you have less than your Minimum Average Balance (MAB), it will start to affect your credit score. Also, when you finish a loan, it’s imperative to get the loan closure certificate.

8. Check your credit reports regularly

Credit reports can be availed for a minimal cost. You can obtain them from the official FICO site. Just pay online and check your credit score at least once in a year, so that you can seek clarification on any mistake and have it sorted.

9. Monitor your co-signed joint accounts properly

In instances of co-signing a loan or maintaining a joint credit account, be careful when dealing with someone outside your close family.

10. Negotiate if you cannot pay on time

People often know that they would not be able to pay their bills in advance. If you know you will not be able to pay on time, negotiate with your bank. Banks will be willing to extend your loan period and reduce the EMI if they see a genuine customer.

Why your credit score is important to your home purchase

Did you know your credit score can affect your home purchase? In Keith Loria’s BHG story recently, he discussed this idea.

As he points out, “having a good credit score can be the difference between obtaining the mortgage you need to buy your dream home—or settling for less because you didn’t qualify for the money you need.”

This is important as many buyers don’t consider their credit score until they’re already involved in the process. At that point, it’s usually too late to fix anything that might be wrong with your score. So think ahead and monitor your credit score!

Don’t like your credit score? Paying off debts is the fastest way to up your score, but if you are in the process of applying for a loan, check with the lender first. Missing deadlines on your credit payments are huge hits to your credit score!

credit score 1 — Image by www.CafeCredit.com: https://www.flickr.com/photos/cafecredit/27321078025/

I also spoke with my local lender, Jay Vorhees of JVM Lending, about this, and he gave me a few benefits to having a high credit score :

Borrowers with higher credit scores usually get lower interest rates (especially when loan-to-value ratios are higher)
Borrowers are allowed to make smaller down payments, if necessary
Underwriting requirements become less onerous because there are fewer conditions and requirements
Second mortgage financing is easier to obtain, if necessary

If you have any questions about credit scores, purchasing a home, or the market in general, please feel free to reach out. I’m happy to help or guide you to the right person!

Top 5 Must-Do’s for First-Time Home Buyers

So you’ve finally made the big decision. You’re going to buy a house!

You are aware of the long road ahead, but excited to take on the challenge and have a home you can call your own.

It’s a stressful process, however there are a few things you can do to help prepare for your first time through the home-buying process:

Determine your budget.

There are many online calculators available that can help you to get an idea of what your monthly mortgage payments should be, based on how much money you are looking to borrow. Don’t forget to include property taxes, though – estimate 1.25 percent of the purchase price for a yearly property tax estimate. If you are looking at a condo or a townhouse, then you most likely will have to consider a monthly HOA fee. Also, look at what your income, debts and assets are; this is where I strongly recommend you speak with a lender. The good ones break that all out for you and can help you work up a budget.

Examine your credit and credit score.

You want to get yourself in the best position to qualify for the lowest interest rates and best mortgage terms and one way to do that is to beef up your credit score. If your score is less than perfect, look for ways to increase your score. If you have limited credit history, look for ways to build positive credit before you apply for a mortgage loan. This is another area that a good mortgage broker can give some suggestions to improve your credit. No matter what your score is, review your credit report to ensure that there are no errors on your report which ay impact your ability to qualify for the mortgage you want.

Where will your down payment come from? And how much will you need?

Buying a home is a big financial commitment, which can often require a big cash down payment. Where will you be getting your down payment from – savings, a 401(k) or IRA withdrawal? As a gift from family? Although FHA loans are often an attractive option for first-time homebuyers because they only require you put 3.5 percent down, you’ll still need to roughly determine how much 3.5 percent will be and where you’ll be getting those funds from, while still saving enough for closing costs. All the while, you must keep your debt-to-income ratios in line with guidelines.

Begin to gather up all the documents you’ll need to qualify for a mortgage.

When you apply for a mortgage you’re likely going to need to show your lender proof of your identity (passport, driver’s license or similar) as well as recent pay stubs from your employer and copies of your past year (or two years) of tax returns. Each lender will have their own requirements, but gathering together these basic pieces of information can help make the mortgage application process go smoothly. Again, a good lender will send out an introduction email with a list of the things that are required.

Get preapproved for a mortgage before you begin house hunting!

This is a MUST! Home sellers want to know that you’re serious about buying, and one of the best ways to show them that is by submitting an offer that comes with mortgage pre-qualification. In some hot housing markets, sellers won’t even accept offers without a pre-qualification or DU Approval. A good real estate agent will also help guide you through this process, which can include an informative face-to-face about the whole process or a good lender recommendation.

Excerpts of this blog generously borrowed from The Orland Group Realtor Coaching.