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Thinking about buying a home? It's important to know your credit score. One of the first steps a mortgage lender does is check an applicant's credit score, which not only determines loan eligibility but also the interest rate and mortgage terms a bank is willing to offer. A high score translates into a lower interest rate, which can calculate out to saving thousands of dollars over the course of a loan. Consider these three tips to improve your credit score:
1. Read Your Credit Report
It's important to know how credit card debt negatively impacts a credit score and the actions you can take to improve it. Making payments late or maxing out credit limits will lower your credit score. If you have been in the habit of making late payments, focus on making on-time payments to boost your credit score. Next, look at your credit balances versus your credit limit for each account. Identify accounts that are maxed out or nearing their limit. To achieve the ideal ratio, the card's balance should be no more than one-third its credit limit.
2. Fix What You Can
An easy fix for maxed-out credit cards may be as simple as calling the credit card companies and asking for an increase in your credit limit. Otherwise, ask them what you need to do to qualify for an increased credit limit. Sometimes on-time credit card payments for several months will be enough to get the credit line increase you need. Also, identify any cards that show an outstanding dispute. Lenders will require some resolution or a written explanation for all outstanding disputes.
3. Set a Target Credit Score
Traditional lenders want to see credit scores of 700 or above to get the best rates. Scores between 680 and 700 will qualify but usually at a higher interest rate. However, the Federal Housing Administration (FHA) and Veterans Administration (VA) accept scores below 680 with additional requirements. A mortgage loan officer can give you the details you need to set a target for your credit score.
If you are planning on buying a house soon, start by focusing on building up your credit score. A strong score will help you qualify for the best mortgage rates.
