How to improve your credit score to get a mortgage for your first home

Wondering how to improve your credit rating? Of course, it’s easy to fall in love with the idea of ​​buying a house. You’ve got it all planned out: a five-bedroom home in your favorite neighborhood with a manicured lawn and, why not?, a nice pool.

But if you’re going to get a mortgage (and let’s face it, most homebuyers do), you’ll probably need to improve your credit score, also known as a FICO score, a simplified calculation of your debt and repayment history. regular loan payments. If you’re borrowing money to buy a home, lenders want to know you’ll pay their timely return, and a credit score is an easy estimate of these ratings.

Here’s your crash course in that all-important little number and how to put it into the best possible shape for a home purchase.

Pull your credit report


There are three major credit bureaus in the United States (Experian, Equifax, and TransUnion), and each publishes its own credit scores and reports (a more detailed history used to determine your rating). Their scores should be roughly equivalent, although they come from different sources. For example, Experian takes into account on-time rent payments while TransUnion has detailed information on previous employers.

To access these scores and reports, the financial planner Bob Forest of Mutual of Omaha recommends using AnnualCreditReport.com, where you can get a free copy of your report every 12 months from every credit reporting company. However, this does not include your credit score – you will need to approach each company for this and pay a small fee.

Or check with your credit card company: Some, including Discover and Capital One, offer free access to scores and reports, says Michael Chadwick, owner of Chadwick Financial Advisors in Unionville, CT. Once you have your report, read it carefully page by page, especially the “junk accounts” section which details late payments and other slippages.

Assess where you are

It’s simple: the better your credit report, the higher your score and the better your chances of getting a home loan. The Federal Housing Administration requires a minimum credit score of 580 to allow for a 3.5% down payment, and major lenders often require at least 620, if not more. So what can you do if your credit report is in poor shape? Don’t panic, there are ways to clean it.

How to Improve Your Credit Score With Error Disputes

A 2013 Federal Trade Commission study found that 5% of credit reports contain errors that can falsely affect your score. So if you spot any, start by sending a dispute letter to the bureau, providing as much documentation as possible, per FTC guidelines. You will also need to contact the organization that provided the wrong information, such as a bank or medical provider, and ask them to update the information with the bureau. It may take some time and you may need documents to plead your case. But once the bad information is removed, you should see a bump in your score.

Erase point errors


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So you’ve made a late payment or two, who hasn’t? Call the company that recorded the late payment and request that it be removed from your file. “If you had an oopsy and only missed a payment or two, most companies will indeed tell their reporting division to remove that from your credit report,” Forrest says. Granted, this won’t work if you have a history of late payments, but for mishaps and small mistakes, it’s an easy way to improve your credit score.

Increase your limits

A simple way to increase your credit score is to simply pay off your debt. Not an option at the moment? Here’s an interesting loophole: ask your credit card companies to increase your credit limit instead. This improves your debt-to-equity ratio, which compares how much you owe to how much you can borrow.

“Having $1,000 in credit card debt is bad if you have a $1,500 limit. It’s not as bad if your limit is $5,000,” says Forrest. The simple math: Although you owe the same amount, you’re using a much smaller percentage of your available credit, which is a good reflection of your borrowing practices.

Pay on time

If you are often late with payments, now is the time to change. You have the power to improve your credit score yourself. Make a commitment to always pay your bills on time; consider signing up for automatic payments to ensure this is guaranteed.

give yourself time

Unfortunately, negative items (such as usually late or non-existent payments) can remain on your report for up to seven years. The good news? Changing your habits makes a big difference in the “payment history” segment of your report, which accounts for 35% of your score. That’s why it’s essential to start early so you’ll be seated once you shop for homes and find the one that makes you swoon.

Once you’ve put your credit on a better path, it’s time to tackle the next big hurdle: saving for a down payment.

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Check out our First-Time Homebuyers Resource Center for more tips to help you along your home buying journey.

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