Boost Your Credit Score

Begin With Your Credit Report

Obtain a copy of your credit report.  There are multiple credit bureaus (Equifax, Experian and TransUnion).  Each of the credit bureaus have a different process for calculating your credit score.   As well, on occasion, one of the credit bureaus may not have an account or notation the others have on their reports.   The intent of the report is to provide your credit score, descriptions of each of your credit accounts and your payment history.

Check Your Report For Errors

It is very important to carefully review your credit reports(s) as there can be errors or even unpaid bills you are not aware of.  Sometimes there will be items on your credit report that are not yours. Carefully review your report for negative remarks. View for incorrect credit or remarks as items may be posted to your credit report by mistake.  A common example of misreporting would be if your name is similar to a family member or even to someone you do not know, sometimes their credit issues are mistakenly posted to your account.  You can follow up with the credit bureau if you find errors to correct.  If you find a missed bill that has been sent to a collection company, you can try to resolve with them or reach out to the credit bureau to try to resolve the issue.

• Pay Down Your Balances

When lenders are looking at your credit, one of their metrics is to evaluate your debt-to-credit ratio.  A high credit card utilization could have a negative impact on the debt-to-credit ratio.  If you do have some extra funds, you could make a large payment to reduce the balance; however, if the extra funds you have set aside are for using towards your down payment and closing costs on your new home then they are not extra funds as you will need the funds when you purchase.

• Increase Your Credit Limit  

One suggestion you may have heard is you can try to increase your credit limit to improve your debt-to-credit ration. The downside can be using the additional credit limit for purchases. Your credit card issuer will answer the question if you can increase your line size. This could reduce your debit-to-credit ratio and could boost your score by a couple of points if there are no additional increases in your debts on the credit card or any other debts.  Most lenders will not recommend this option.

• Don’t Miss Any Payments

Missing one or two payments can cause a drastic decline in your credit score. If possible, you should never skip a payment. Paying the minimum amount is much better than skipping a payment altogether.

• Avoid Unnecessary Hard Inquiries

Hard inquiries occur when a lender, credit card company or some other company you are potentially obtaining credit from can see your track record as a borrower.  Hard Inquires can have a negative impact (generally more short term – typically they disappear from your credit report after a year) on your overall credit score as they can reduce your credit score. When you apply for a loan to purchase your new home, as you go through the pre-approval process with your lender, they will make a hard inquire on your credit.  

• Don’t Make Any Major Purchases

Making a major purchase before buying or while purchasing a home can significantly alter your credit. While working with your lender for the loan on the home you are purchasing, purchasing a new car, putting a significant balance on a credit card, etc. will increase your debt-to-income ratio as well as impact your credit. Be especially diligent to avoid major purchases after you’ve already been pre-approved by your lender.  The lender has provided a pre-approval based on the information you provided.  If this changes, so could your being approved to purchase a home.

Positive credit habits play an important part in the home-buying process. Your lender will evaluate whether you have a history of using credit responsibly. Practicing good habits is the best way to be prepared when it’s time to apply for a mortgage.