If you’re considering purchasing a home or refinancing an existing mortgage, you most likely know the importance of paying your bills in a timely manner in order to preserve good credit. Even if you intend to be responsible with credit, certain situations can derail you and harm your score.
We’re going to go over some tips to help you keep your credit in great shape so you can avoid any credit issues. Let’s get started!
Review Your Credit Scores and Reports
It is critical to review all three of your credit reports from Equifax, TransUnion, and Experian before applying for a mortgage. AnnualCreditReport.com offers a free copy of each report once every 12 months.
If you find any errors on your credit reports, you should notify the credit reporting agencies immediately. An investigation into a credit dispute can take between 30 and 45 days. Furthermore, if the first investigation results in a negative outcome, you may have to try again or try a different approach entirely to resolve the issue.
Pay Down Credit Card Debts
Are you aware that even if you make your monthly payments on time, having a large outstanding credit card balance can impact your credit? It’s actually high credit utilization on your credit cards that can hurt your scores, but large balances in relation to your credit card limits cause that high utilization.
You can lower your credit utilization ratio by paying down your credit card balances. Once the new card balances are updated on your credit reports, this may have a positive impact on your credit scores.
Make On-Time Payments
This one comes as a no-brainer! On-time payments are critical to establishing and maintaining good credit. If your credit reports show any recent late payments, it’s usually a good idea to wait some time (six to twelve months) before submitting a mortgage application.
When late payments first occur, they have the greatest negative impact on your credit score. Then, as time goes on, they become less damaging. In terms of scoring, the older a late payment becomes, the better.
Hold Off on New Credit Applications
When a lender checks your credit as part of an application, a hard inquiry is recorded on your credit report. That hard inquiry could have a 12-month impact on your credit score.
This isn’t to say that every time a lender pulls your credit, it will harm your scores, but it is possible. As a result, if you know you’re going to buy a house soon, you should put a hold on any non-essential new credit applications.
The Takeaway
Taking the time to improve your credit score could save you tens of thousands of dollars in interest over the course of a 30-year mortgage. Whether you are about to purchase your first home or your third, it’s easy to get lost in the excitement and the urge to move quickly. You must keep in mind the role your credit score plays in the cost of your mortgage and your ability to even qualify!
Before you apply, take your time and prepare your credit to the best of your ability. Your efforts may pay off and save you a significant amount of money in the long run.