Buying a house: can I quickly increase my credit rating?

Buying a home is so exciting, until you realize your credit score could use some help. Here’s what not to do to maintain a good credit score.

Buying a home is such an exciting time, especially if your search for the perfect home has been long or difficult – and whose house hunting isn’t these days! Of course, once you’ve found your dream home, it’s time to take out a mortgage. But what if your credit score needed a boost? Are there ways to quickly improve your credit rating? To find the answers (just in time for National Credit Education Month!), we asked a few experts in the financial services industry. Here are their tips.

CAN CREDIT SCORES BE INCREASED QUICKLY?

So, is there a quick way to boost your credit score? The short answer is: not really.

Roberta King, Vice President, Section Head at Loyalty investments, says, “In general, establishing a strong credit history takes time. That’s why it makes sense to adopt good credit habits even if you’re not looking to apply for a loan in the near future. This way, if or when you are thinking of buying a home, you should already be in a strong position to do so.

But what if you’re about to buy a house and need to get a mortgage as soon as possible? Our experts have shared some additional tips for you and your credit score when buying a home.

WHAT IS A GOOD CREDIT SCORE?

King advises that if you’re looking to improve or even just maintain your credit score, there are five things to pay attention to: “payment history, credit usage, length of credit history , the new credit and the credit combination”.

King goes on to say that the more payments you make on time, the higher your credit score. She also notes that credit usage is “another major piece of the puzzle.” She says, “{M}make sure your outstanding balance never exceeds 30% of your credit limit. All things being equal, using less of the total credit you have should help improve your credit score.”

Zev Fried, CRPC®, financial advisor, former real estate finance professional, Los Angeles, CA, agrees. Fried tells us, “Another secret to increasing credit rating is to keep credit utilization low – 30% or less is ideal…someone with a $10,000 line of credit should have a debt of $3,000 or less.

This is an important tip to keep in mind if you are considering buying a home. It’s a good idea to review the amount of debt you carry on each line of credit you currently have.

WHAT NOT TO DO WHEN BUYING A HOME

Certainly, there is no magic formula that will quickly increase your credit score when buying a home. However, there are some key things to avoid when buying a home and wanting an attractive credit score.

“If you’re concerned about your credit score when applying for a mortgage, don’t accept any additional credit at that time,” advises Fried. Instead, try timing those other loan or credit card applications long after the home is purchased — King recommends waiting about a year after closing.

Fried also recommends not closing any existing lines of credit, including credit cards, while you’re buying a home. It “reduces your usage count, making you less attractive to a lender.” Fried notes that “the older the line of credit/card, the more valuable you are relative to your credit score.”

King expands on this concept by saying, “Having a long credit history shows you have more experience in debt management. That’s why it can be a good idea to keep old credit cards open, even if you’re no longer actively using them. However, she warns that closing a credit card may be wise if there are annual fees or if you’re too tempted to spend more than you should.

ADDITIONAL TIPS ON CREDIT SCORES

King recommends that you “use good judgment about who you share your credit with. Their actions can end up impacting your credit score, so think carefully before helping a family member co-sign a loan or add another one to your credit card as an authorized user.

Plus, discernment pays off on your credit score. Fried says, “Every time you apply for credit, an investigation is done. A survey may lower your score slightly as it may be a sign that you are taking on more debt.

IMPROVE LONG-TERM CREDIT SCORES

Improving your credit score is entirely possible, although it’s usually not a quick process. If you are looking for a house, be sure to take a good look at your credit score now. Ideally, you’ll want to follow these expert tips to start boosting your credit score before buying a home. And as King notes, “Ultimately, keeping your finances healthy overall should also help keep your credit on track.”

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