How Do I Improve My Credit Score to Buy a House?
Improve your credit score to buy a house.
First, You Need to See the Credit Report
When lenders begin the process of determining whether or not they will give you a loan, the first thing they do is analyze your credit payment habits. To help them with this analysis lenders order a detailed report of your credit payment history.
Learn strategic tips that may help increase your credit score, and, perhaps help you get the loan you need to buy your home.
How Do You Improve Your Credit Score?
There are five main things you can do now to improve your credit score.
- Pay Your Bills on Time. The longer you pay your bills on time, the more your credit score improves.
- Pay Down Your Balances. Pay down and keep your balances low on credit cards and other revolving credit. In fact, this is the most effective way to improve your credit score.
- Only Apply for New Credit if You Need It. Don’t apply for a whole bunch of credit cards just to have them available. All of those credit cards are considered “available” debt. In addition, debt is not a good thing to have when you need to prove that you have the income to manage your current outstanding debt, in addition to the new debt or loan for which you are applying.
- Do Not Close Unused Credit Cards. Just as you don’t want to go out and apply for many new credit cards, you actually don’t want to close unused credit cards as a short-term strategy. Unbelievably, this could actually lower your score. Why? Because, a portion of your credit score is determined by the length of time you have had and maintained your credit card. If you close a credit card that you have maintained a low to zero balance over a period of, say, 10 years, then you may end up losing some points. Longevity weighs significantly in the credit score model. Longevity shows the lender that you are able to manage debt over a long period of time. Most home loans are for 30 to 40 years, so if you are able to maintain credit card debt for 5, 10, 15 or more years, then the lender may feel confident that you can also maintain a mortgage for, say 30 years.
- Check Your Credit Score on a Regular Basis. A diligent thing you can do to maintain your credit score is to check your credit report on a regular basis. There may be something on your report which is reported in error, plus, there is a lot of identity theft going on these days and it takes time to sort through it all. You don’t want to be in the process of buying a house only to have the process slowed down because of incorrect information on your credit report.
What Makes Your Credit Score Worse?
What makes your credit score worse is late payments. Just simply paying your bills late, even one time, will bring your score down. Some people say, “I pay my bill late, but, I pay it!” Well, having a series of late payments is just as bad as missing payments. Lenders look at that as, “Not paid as agreed.” In other words, if you agreed to have your payment to the lender by the first of every month, but you actually make the payment on the 31st day of the month, then, you have not paid as agreed. Naturally, not making a payment at all is a bad thing, too. And, worse is when your account is sent to a collection agency or if there is a judgment against you that you didn’t pay or even worse than that - a bankruptcy.
When lenders see negative entries on your credit report they automatically assume that if you don’t pay other creditors on time, you may not pay them on time either. So, it does make them hesitate a little when it comes time to loan money to someone with a questionable payment history.
It Takes Time to Improve Your Credit Score
Even though you have the ability to correct the information reported on your credit report, reversing or correcting errors can take between 30 to 60 days or longer before the information is reported correctly and your credit score is adjusted accordingly. The message I want to relay here is – start now! Even if you are not ready to buy a house or refinance, make a habit of looking at your credit report at least once a year to keep up on the information that is reported on your credit report. That way, if something negative does appear, you can take care of it before it becomes an item that threatens your ability to get a loan.
How Do You Find Out About Your Credit Score?
You can obtain your credit score from many sources on the internet. Note that checking your own credit does not lower or affect your credit score.
Some places are free and some charge a small fee. When you go to the web sites, you’ll know up front which are which. Here are some web sites you may want to try for starters.
www.myFICO.com - Fee ranges from $19.95 per month to $39.95 per month for various monitoring services.
www.FreeCreditReport.com - Free Credit Report.
www.CreditKarma.com - Free credit report and free advice to help you improve your credit score.
Hope is Nearer Than You Think
No matter what your credit history looks like now, even if you have derogatory entries on your credit report, such as collections and bankruptcies, you may still be able to get a loan. It all comes down to what your credit score is and how long ago the derogatory situation occurred. The best thing you can do is to find out where you stand right now. So, when the time comes that you need a loan, you’ll be closer to being able to buy the home of your dreams.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
© 2012 Marlene Bertrand
Comments
Marlene Bertrand (author) from USA on July 03, 2019:
You are welcome, Robert.
Robert Sacchi on July 03, 2019:
Thank you for the advice.
Marlene Bertrand (author) from USA on July 03, 2019:
You are definitely on the right track, Robert, toward getting that line of credit. Being aware of your credit histoy before you apply for the loan allows you the ability to strengthen your report prior to the lender seeing it. Congratulations! I feel positive you will get your loan.
Robert Sacchi on July 02, 2019:
Thank you. May attempt to get a line of credit sometime down the line.
Marlene Bertrand (author) from USA on July 02, 2019:
Ken, thank you so much for the reference to Credit Karma. At the time I wrote this article, I was just beginning to use Credit Karma and was not as familiar with them as the others mentioned in the article. I do like Credit Karma a lot and thank you for reminding me of them, I will add them to the reference list.
Congratulations on your diligence in getting your score up so high. The high 700s is quite spectacular. You have a lot to be proud of.
Thank you for sharing your experience with Credit Karma and the success you had with them.
Marlene Bertrand (author) from USA on July 02, 2019:
Thank you Robert. And, if you are now or will be in the market for a loan, I hope the process is easy for you and that you get that loan!
Ken Burgess from Florida on July 02, 2019:
Marlene, great article.
There is a free site that allows you to check two of the three credit rating companies called Credit Karma.
This is a valuable tool, on that site is a place where it breaks down how they come to your credit score... such things as how much credit you have outstanding, how much of it you have used, and how long you have had that credit impacts your score.
You can indeed change your credit score with what you have laid out, in exactly one year, following much the same as you outlined, my score went from the 500s to high 700s.
Robert Sacchi on July 01, 2019:
Good points.
Marlene Bertrand (author) from USA on July 01, 2019:
Yes, Robert. Self control is the essence of the game.
Considering that our score is calculated using formulas and algorithms that we have no control over, if we want to increase our score, then we must show a picture of our credit activity in a way that appears the way the algorithms will see as favorable. Part of that scene is to show that although we have available credit, we choose not to use it. It shows that we have self constraint. Bankers look at that and evaluate us accordingly.
We may not like the rules, but those are the rules and if we want to win the game, we have to play by the banker's rules. It's our choice whether we want to play or not. But then again, it's the banker's choice whether he or she wants to give us a loan or not.
Robert Sacchi on July 01, 2019:
So if someone cuts their cards they should keep the account open then consider if they have enough self control when the company sends them the next card?
Marlene Bertrand (author) from USA on June 30, 2019:
Hi Robert. I'm glad you caught that information about the credit cards. Sometimes it is hard to follow the logic behind it, but it "pays" off in the longrun if you follow the strategy.
Robert Sacchi on June 30, 2019:
Thank you for posting. I didn't realize that about closing credit card accounts.
Marlene Bertrand (author) from USA on August 07, 2013:
Hi Rajan. Yes. Having a good credit score is the first thing lenders look at, then income and all the rest.
Rajan Singh Jolly from From Mumbai, presently in Jalandhar, INDIA. on August 06, 2013:
Very useful and interesting read, Marlene. Having a good credit standing is very important in securing loans quickly. Thanks.
Marlene Bertrand (author) from USA on August 03, 2013:
Hello C_Pinto. Thank you for your positive feedback. The credit score is such an integral part of the loan process. Knowing what to do to get a good score is so important.
C_Pinto from USA on August 03, 2013:
You covered the topic very well. Buying a home is a serious matter and your advise is very helpful. Thanks!
Marlene Bertrand (author) from USA on December 04, 2012:
Hi alocsin, I'm sorry it took so long to respond. I'm actually in your neck of the woods, getting ready for a talent event. I'm helping my daughter prepare for her show. It's been fun, but I have been lacking on my hub activities. Anyway, it is good to see you here.
Yes the housing market is picking up a little. It has been rough for a lot of people, but hopefully, through the slump, people have had a chance to work on fine-tuning their credit history in preparation for the up-turn.
Aurelio Locsin from Orange County, CA on December 02, 2012:
This is a timely article now that the housing market is picking up again. Voting this Up and Useful.
Marlene Bertrand (author) from USA on November 23, 2012:
Hi Brett, you are absolutely correct. I call it strategic planning. Thank you for your excellent, additional, information that borrowers should also consider when seeking a loan.
Brett C from Asia on November 22, 2012:
Sound advice. Sometimes (but, not always), it can be a good idea to consolidate your debt in advance of applying. Or, depending on your mortgage situation, some choose to merge their debts into the mortgage. These options can lead to more interest being paid over time (depending on your individual situation), but can often make the debts and monthly payments far easier to manage!
Shared, up, useful and interesting.
Marlene Bertrand (author) from USA on August 23, 2012:
Hi Miranda Birt. Thank you for the additional reminder that there may be a fee to see the credit report. And, thank you for the additional resource for viewing credit reports. It is all helpful information.
Miranda Birt from Austin, Texas on August 23, 2012:
This is a great article for people looking to build credit before buying a home. While keeping track of your credit score is a great thing to do before the purchase, there is a fee for seeing your credit score. If you want to pull your credit report before you commit to paying for a service that monitors your score, use AnnualCreditReport.com - this will allow you to view and print all 3 credit bureau's reports, and it will give you the opportunity to dispute and correct information contained in them. Just some extra information in case you are budget-conscious! Great article!
Marlene Bertrand (author) from USA on August 23, 2012:
Trish303 - That's true, also see the comment from go2mortgageguy with more clarity on this concept.
go2mortgageguy - So, so true!
go2mortgageguy on August 23, 2012:
The algorithms also look at your available credit. If you have a $0 balace on a card with a $10k limit - you have $10K available to you. If you close out that card, the algorithms look at it like you just denied yourself access to $10k....pay the balances down - but keep the accounts open. More here: http://go2mortgageguy.wordpress.com/2012/08/17/lea...
Brenda from Springfield, MO on August 23, 2012:
Thank you very useful information. I never thought about closing an unused credit card would hurt your credit. My family is getting ready to buy our first home and I hope these tips will help us get a better loan. Thank you.
Marlene Bertrand (author) from USA on August 22, 2012:
Hi Faith Reaper, it's one of the first things people do - cancel the unused credit cards. It makes sense to close the cards, but the algorithms that generate the credit scores see things differently than we humans. That's one of the quirks of technology. What doesn't make sense to humans, makes sense to "systems". Thank you for reading and for your comment.
Faith Reaper from southern USA on August 22, 2012:
Excellent advice here, Marlene! I think I made the mistake of closing the unused credit cards. Oops. This hub should be very helpful to many people. God bless. In His Love, Faith Reaper
Marlene Bertrand (author) from USA on August 22, 2012:
colombostock, thank you for your positive comment.
colombostock from Colombo Sri Lanka on August 22, 2012:
Thanks for the useful tips!
Marlene Bertrand (author) from USA on August 22, 2012:
Thank you ChitrangadaSharan. I hope it helps.
Chitrangada Sharan from New Delhi, India on August 22, 2012:
Very useful information for everyone. Thanks for your effort and sharing.
Marlene Bertrand (author) from USA on August 21, 2012:
Thank you for your positive comment, catmalone. Hopefully, a tip or two would help someone raise their credit score to get a really good loan.
catmalone on August 21, 2012:
Very useful information to think about before buying a home. Thanks!
