MARSHFIELD, WI (OnFocus) – Knowing how to build credit to buy a house can give you a serious advantage when it comes to homeownership. Your credit scores and credit history are key factors in getting pre-approved for a home loan. Understanding how to build credit can help you achieve your homeownership goals faster and make smart decisions throughout your financial life.
“Fortunately, you don’t have to learn how to build credit to buy a house on your own,” said Josh Kilty, Mortgage Loan Officer at Fairway in Marshfield. “In addition to the tips offered in this article, your Fairway loan officer can help you create a plan for improving your credit score and boosting your chances of buying a home or can refer you to our team of credit analysts. We’re here to help!”
Top Tips:
Request and review your credit report for free
If you are not already doing so, make it an annual goal to request and review your personal credit report from each of the three major credit bureaus at www.annualcreditreport.com. There is no cost for you to do so.
The Consumer Finance Protection Bureau, also known as CFPB, offers a Credit Report Review Checklist you can use to help you find errors in your report. If you do find any errors, you will want to follow the dispute process to get them corrected.
Dispute errors on your credit report
A recent Consumer Reports investigation found that more than one-third of consumers find errors on their credit reports. Some of these errors are minor, but others can have a major impact on your credit score and your ability to borrow money to buy a house.
Luckily, it’s easy to dispute errors on your credit report. All three credit bureaus — Equifax, Experian, and TransUnion — allow you to dispute errors online. You can indicate the reason for the dispute, and the credit bureau will investigate.
When you dispute an error, the credit issuer is required to investigate and determine if your dispute is legitimate. If they determine a genuine error or inaccuracy, it must be removed from your credit report. The dispute process generally takes about 30 days to be resolved.
Pay your bills on time
Your payment history is the most important factor in your credit score, making up 35% of the calculation. As a result, even one missed payment can have a major impact on your credit score. So while it sounds simple, paying your bills on time each month really is the best way to maintain a good credit score.
If you struggle to pay your bills on time, set up autopay to ensure you never miss a payment. And if you already have late payments or delinquent accounts on your credit report, get them resolved as quickly as possible so your credit can start to recover.
Pay down credit card debt
Your credit utilization — or the percentage of your available revolving credit you’re using — is another important factor in determining your credit score. It makes up 30% of the calculation. In general, you should keep your credit utilization below 30% (though lower is even better). If you currently have credit card debt, you can likely boost your credit score by paying off some of that debt.
Increase your credit limits
We’ve talked about how reducing your credit card debt can also reduce your credit utilization. But the other piece of the equation is your credit limit. Because your utilization is based on the percentage of your available credit that you’re using, you can also lower that percentage by increasing your available credit.
Some credit cards automatically increase your limit over time with on-time payments being made. However, you can also request a limit increase by calling your creditor’s customer service number or even directly in your online account.
Avoid new debt
Some people try to boost their credit score to buy a home by opening a new credit card, thinking this will help them reduce their utilization and lengthen their credit history. And while this may be true in some cases, it’s important to take caution before using this strategy.
Opening new accounts immediately before applying for a mortgage could indicate red flags to a lender. If you’re 6-12 months out from applying for a mortgage, opening a new credit card could be helpful. But if you’re closer than that, try to avoid new accounts. When in doubt, talk to your loan officer about whether opening a new account will help or hurt your home-buying profile.
Don’t close paid accounts
Once you pay off an account, you may be tempted to close it, but the best thing you can do is leave the account open, especially when it involves a credit card. To get the most score benefit from credit cards, it’s best to keep each account open and use it sparingly, at least every month. The minimal activity will assure the account is considered in credit scoring as it ages and the low balance to credit limit ratio will help contribute to 35% of your credit scores.
If you are not already doing so, make it an annual goal to request and review your personal credit report from each of the three major credit bureaus at www.annualcreditreport.com. There is no cost for you to do so.
The Consumer Finance Protection Bureau, also known as CFPB, offers a Credit Report Review Checklist you can use to help you find errors in your report. If you do find any errors, you will want to follow the dispute process to get them corrected.
Dispute errors on your credit report
A recent Consumer Reports investigation found that more than one-third of consumers find errors on their credit reports. Some of these errors are minor, but others can have a major impact on your credit score and your ability to borrow money to buy a house.
Luckily, it’s easy to dispute errors on your credit report. All three credit bureaus — Equifax, Experian, and TransUnion — allow you to dispute errors online. You can indicate the reason for the dispute, and the credit bureau will investigate.
When you dispute an error, the credit issuer is required to investigate and determine if your dispute is legitimate. If they determine a genuine error or inaccuracy, it must be removed from your credit report. The dispute process generally takes about 30 days to be resolved.
Pay your bills on time
Your payment history is the most important factor in your credit score, making up 35% of the calculation. As a result, even one missed payment can have a major impact on your credit score. So while it sounds simple, paying your bills on time each month really is the best way to maintain a good credit score.
If you struggle to pay your bills on time, set up autopay to ensure you never miss a payment. And if you already have late payments or delinquent accounts on your credit report, get them resolved as quickly as possible so your credit can start to recover.
Pay down credit card debt
Your credit utilization — or the percentage of your available revolving credit you’re using — is another important factor in determining your credit score. It makes up 30% of the calculation. In general, you should keep your credit utilization below 30% (though lower is even better). If you currently have credit card debt, you can likely boost your credit score by paying off some of that debt.
Increase your credit limits
We’ve talked about how reducing your credit card debt can also reduce your credit utilization. But the other piece of the equation is your credit limit. Because your utilization is based on the percentage of your available credit that you’re using, you can also lower that percentage by increasing your available credit.
Some credit cards automatically increase your limit over time with on-time payments being made. However, you can also request a limit increase by calling your creditor’s customer service number or even directly in your online account.
Avoid new debt
Some people try to boost their credit score to buy a home by opening a new credit card, thinking this will help them reduce their utilization and lengthen their credit history. And while this may be true in some cases, it’s important to take caution before using this strategy.
Opening new accounts immediately before applying for a mortgage could indicate red flags to a lender. If you’re 6-12 months out from applying for a mortgage, opening a new credit card could be helpful. But if you’re closer than that, try to avoid new accounts. When in doubt, talk to your loan officer about whether opening a new account will help or hurt your home-buying profile.
Don’t close paid accounts
Once you pay off an account, you may be tempted to close it, but the best thing you can do is leave the account open, especially when it involves a credit card. To get the most score benefit from credit cards, it’s best to keep each account open and use it sparingly, at least every month. The minimal activity will assure the account is considered in credit scoring as it ages and the low balance to credit limit ratio will help contribute to 35% of your credit scores.
To learn more, visit www.FairwayJoshK.com
Author: News Desk
This piece was posted by our news team! Contact us or submit stories at [email protected].
