While it’s possible to secure a mortgage loan without one, using a credit score is one of the fastest and most efficient ways to complete your application. These scores are used in the vast majority of applications, and if you want to get an affordable loan, you’ll likely want a quality score.
Your credit score can impact the interest rates and terms of your mortgage, and a low score can significantly reduce your options while increasing your monthly payments.
Fortunately, there are simple and effective ways to steadily increase your score. With the right knowledge, a little diligence, and a bit of patience, you can increase your score to get an affordable loan on a wonderful home!
Expert Tips for Improving Your Credit Score
Check Your Credit Score for Accuracy
One of the most fundamental steps for improving your credit score is reviewing your credit report for inaccuracies or outdated negative information. There can be many false points on your credit report, due to error or inaccurate reporting from companies, and certain information should be removed after a certain period.
Review your report and you may find items that should be removed; you’ll then have to work with the credit agencies to have them taken off your report, which will increase your score. To remove items from your report, you’ll have to contact the specific agency and make a dispute. The agency will then check the disputed information and if they can’t prove it’s true, they will have to remove it.
More Credit is Not the Solution
If your credit is low, you might think that going out and using new lines of credit would be a solution. This is rarely the case. Your score is low not because you don’t have enough lines of credit, but because you haven’t properly managed the credit you already have.
Stop searching for more credit and don’t try for that perfect credit card that will magically improve your score. Every time you apply for a new credit line, your score will take a slight dip, so avoid new credit within six months of your mortgage application. Focus on managing and controlling the debt you have for the best results.
Keep Credit Card Balances Low
You may also assume that spending as much as possible on your credit cards will help as well. Again, this is not always the solution. It’s best to start managing your credit wisely and keep your balances low.
If your credit is constantly maxed out, your score will suffer. Keep balance at about 20% to 30% of the available credit and you should see a steady improvement on your score. You’ll also have less debt, which will be easier to manage.
Pay All Your Bills on Time
Of all the different information that is used to create your score, your payment history is the largest, making up 35% of your credit. Past payment are given a high priority, so you need to make sure that all payments are made on time.
If you have payments that you can’t afford, it is time to remove that debt from your profile. This will allow you to have a manageable amount of debt so you can maintain responsible use of credit. After a few months or a year of steady payments, your credit score should see vast improvements.
Use a Secured Credit Card
Credit cards can be great for building credit while earning certain benefits like cash back and airline mileage, but they can get you into a lot of financial trouble if you’re not careful. If you have struggled with credit card debt in the past, it may be time to make some changes. One of the changes you can make is to use a secured credit card.
A secured credit card is a type of credit card that lets you make a deposit into an account, essentially securing the amount you deposited while still building your credit. If you deposit $400, for example, you’ll then have credit for $400. Getting a secured credit card when you have bad credit brings a positive payment history with little or no risk of defaulting on your debt obligations.
Lower Your Debt-to-Income Ratio
Your debt-to-income ration, or “DTI,” is one of the most important factors in your mortgage application, and it can also affect your credit score, although indirectly. To calculate your debt-to-income ratio, you need to know your total debt payments every month as well as your monthly income. If someone earns $4,000 a month and has a total monthly debt load of $1,000, the DTI is 25%. Lenders will use this number when considering applicants for home loans.
While the credit score does not consider your DTI (it needs to know your income, which is not included in the credit score), it will consider your total debt amount. Therefore, lowering your total debt load will enhance your score and reduce the amount you owe at the same time. Take a look at your debt load; if you are approaching 43% DTI (generally considered the highest acceptable percentage), you should eliminate some of your debt, which will free up money and allow you to make steps to improve your score.
Finally, we would encourage you to be patient when improving your credit score. It is possible to increase your score quickly, but most people will need time to make significant changes. When you manage debt responsibly the score will steadily improve, so be patient and don’t get discouraged. Take pride in the small steps and eventually you will have an excellent score.
Helping You Get Approved, No Matter What Your Credit Score!
Even if you have a low credit score, San Diego Purchase Loans is here to help. We take a common-sense approach to mortgage underwriting, helping you secure an affordable mortgage loan no matter what your situation.
We can’t guarantee final approval, but we can promise to do everything in our power to increase your chances of an affordable loan on a world-class house.
My wife and I purchased a home in Escondido, first home together. Chad and his team made the whole process extremely easy and helped us close quickly. Will recommend to all friends and family!”
I HIGHLY recommend Chad and his team.
Chad and The Chad Baker team really helped me from start to finish with my loan process. They were extremely responsive and provided me updates on a daily basis. I had a few personal issues that they helped me work through so I could get the best loan program and best rate. Very knowledgeable about the industry, rates and trends.I HIGHLY recommend Chad and his team. I’m happy to offer a reference upon request. Please ask Chad for my contact information.”
As a first time home buyer, I wasn’t sure what to really expect, but Chad and his team made the process very clear and easy. Once the process was over, they didn’t just vanish either. They kept in touch and looked for opportunities that may benefit me. A couple years later, they found me a great refinance opportunity that saved me a lot of money! Once again, the process is long and grueling, but Chad and his team made it as painless as could be. Any barrier that I encountered, they found a quick solution to make it happen. Mortgages are a huge commitment and I wouldn’t pick any other team to help me make the right decisions.”