Buying a house is a big step for many people, often the biggest investment they'll ever make. Knowing your credit status can ease the stress of such a major financial decision. If you're worried about qualifying for a mortgage, building a solid base of good credit and financial habits can help you reach your goals. Keeping good credit habits before buying a house can help you get a mortgage with favorable loan terms. This could bring your dream home closer to your budget. Plus, you'll start the process feeling confident about your credit and financial situation. Here are some friendly tips on how to get your credit ready for buying a house:
Understand the contents of your credit reports.
Your credit reports are like a storybook of your financial journey that you share with banks and lending institutions. These reports, which lenders can peek into, hold the data that helps shape your credit score. It's super important for these reports to be a true mirror of your credit history. Good news is, you can check your credit reports every week at annualcreditreport.com, free of charge! It's a good idea to take time and read your reports thoroughly, make sure you know all accounts, account activities, and double-check that your personal information is correct. If you happen to find something off in your TransUnion credit report, you can easily challenge it online through our dispute center. For any issues on your other credit reports, you'll need to raise a dispute with each credit bureau individually. Do keep in mind that your credit report may not show the latest activities on your account as lenders typically refresh account info every month. So, there's no need to rush in filing a dispute - your report might just need a bit of time to catch up with the updates. For instance, a recent payment you made may not show up right away on your credit report, but it's likely to pop up when the lender sends in their next update.
Develop assurance in handling your credit
A friendly mortgage broker might suggest you consider a credit repair company if you're looking to boost your credit before buying a home. But remember, everything a credit repair company can do, you can do it too! Managing your own credit information not only saves money, but also builds confidence. Buying a home may sometimes feel like you're navigating a mountain of paperwork. Lenders, being thorough, tend to examine everything closely for such a big purchase. So, keeping your credit reports accurate and up-to-date can help you sidestep any administrative hiccups. Getting a head start by checking your reports and understanding what's in them can make you feel more confident when it's time to sort out your financing. Plus, it can help you figure out any extra steps you might need to take to further spruce up your credit.
Reduce the amount of debt you presently owe.
Lowering your balances can indeed boost your credit score, and it's a great way to reassure lenders that you're fully capable of managing a potential mortgage payment. Just to give you a heads up, your credit utilization, which is essentially the percentage of your available credit limit that you're currently using, plays a big role in determining your credit score. So, if it's doable for you, it might be a smart move to bring down your credit card balances before you start the prequalification process or formally apply for a mortgage.
Be aware of what you can afford
Your bank might be able to offer you a certain loan amount, but remember, there's no pressure to borrow up to that limit. It's really important to set a budget ahead of time and stick to it. Buying a home can be an emotional journey, but sticking to your plan and knowing your financial boundaries can help you make the wisest financial decision. Some people might point out the pitfalls of $5 lattes and other day-to-day spending habits considered as "not necessary". However, making smart choices on big things like a house purchase can make a much bigger difference to your financial health in the long run. Spending too much on a home could end up costing you tens of thousands of extra dollars, plus interest. That's a lot of lattes, right?
Don't take on any additional debt
As you get closer to sealing the deal on your new home, the team helping you buy might suggest not to apply for new credit. This is a good tip because your mortgage application is like a snapshot of your money situation right now, showing all your assets and debts. If you apply for a new loan, it could look like there's been a change in your financial situation and make your lenders wonder if you can handle the payments of the initial mortgage offer. Plus, applying for new credit could temporarily lower your credit score, which might influence your mortgage interest rate. Even a tiny change in the interest rate could cost you thousands over the time you have your mortgage. So, as you prepare your credit to apply for a mortgage, it's a good idea to wait before applying for a new credit card or loan if you can.
Your credit rating is simply an important part of the process.
Having a good credit score is a helpful tool in getting a mortgage with a low interest rate. Keep in mind though, the credit score needed for home buying can vary depending on the lender and type of mortgage. There are also different ways to calculate credit scores. That means the score you often see on your app, website, or service may not be the same one your lender uses when deciding whether to lend to you. It's important to stay in touch with your lender throughout the mortgage application process. Don't forget, your credit score is only one part of what your lender will look at. They might also need a bunch of financial information, like your income, checking and savings accounts, brokerage accounts, current loans, and more. Knowing your credit score is important. But, remember that your score is based on the information in your reports. So, it's a good idea to check your credit reports regularly. This is still important even after you've bought your home and are working towards other financial goals. It should be a normal part of managing your personal finances.
