Are you looking to buy a home? The process can be very exciting but also tremendously stressful all at once, and it leaves many home buyers feeling as though they're being spun in circles. In this quick article, we'll give some advice that will help make things much easier for you when it comes to purchasing a home.
#1 Get your free credit score
There are many services today, like Credit Karma, that will give you a general overview of your credit picture to help you begin determining what sort of interest rate you may qualify for. Generally, the higher the better. Some of your credit cards may also provide you with a credit score, which will generally be more accurate than one Credit Karma or another free service provides.
Capital One's Credit Wise app, for instance, will show you your official FICO score. Discover also offers a free FICO score. You will notice some discrepancy between these scores since they are based on different credit reports (you have three: TransUnion, Equifax, and Experian). Getting a good idea of your credit score is important, so check one of these services and get things in line.
#2 Dispute Errors
The next step is to go to annualcreditreport.com and get one or all three credit reports free of charge. This will allow you to review your report in detail and dispute any inaccurate or unrecognized information you may find. A single inquiry (which comes from a potential lender pulling your credit report) can bring your score down by a few points. If there are any inquiries, late payments, etc. that you do not recognize, go through the process of disputing them.
#3 Transfer Your Credit Card Debt
Your goal right now is to be paying down your debt. If you have multiple credit cards carrying balances, do some math and shift the money around via balance transfers to score a lower interest rate. Keep credit utilization in mind, which is the % rate you are using of your total available credit. If you have one card with a $10,000 limit and a $5,000 balance, you have a 50% utilization rate on that card. The ideal credit utilization rate is 30% or under, so try to pay down your cards with higher interest rates first (as they'll cost you more money) and then start thinking about your utilization rates.
#4 Ask For More Credit
You have to be careful when applying for more credit if you are going to be purchasing a home soon, but it can be beneficial if you do it correctly. If one of your credit cards has a very high balance, getting more credit on that card will bring down your utilization rate, thus giving you a healthier credit picture to lenders (just don't go maxing out the new credit line).
The only thing to watch out for is that applying for new credit within the year leading up to your mortgage application can make lenders think you are hungry for money or unable to manage your finances properly.
#5 Focus On Two Cards
You don't want to apply for a mortgage with balances on many different credit cards. Thus, try to consolidate your spending to just one or two cards with a high limit and/or low interest rate. Pay down your other cards. Keep your overall credit utilization rate and your interest rates in mind so that you can take a strategic approach to your credit use.
You should avoid closing cards, however, even if you aren't using them. Closing a card will affect your overall available credit and your overall credit utilization rate, along with the average age of your accounts. These things can bring down your credit score.
Interested in purchasing a home? Horizon Lending Services is here to help!