Thinking about buying a house or another big purchase in 2022? Now is the perfect time to start tuning up your credit scores. People often make the mistake of ignoring their credit health until right before they’re ready to make their purchase. They may still get approved for the loan, but it comes at a cost. The cost is higher interest and fees. If you’re buying a house, not tuning up your credit before pre-qualification can result in thousands of dollars in lost savings.
In this article, we’ll use the purchase of a new house as an example of why you need to start tuning up your credit scores today.
Review Credit & Credit Scores
The first step is to find out where you stand and where you can improve. There are three major consumer credit bureaus that keep your credit score: Equifax, TransUnion, and Experian. If you’re buying a house, you’ll want to pay attention to your FICO score which is widely used in lending decisions today.
The following factors will determine the strength of your FICO score:
- Payment History = 35%
- Credit Card Utilization = 30%
- Age of Credit Files = 15%
- Mix of Credit = 10%
- Hard Credit Inquiries = 10%
Credit Score Rating breakdown:
- Excellent (781-850) – You may qualify for the best loan terms available
- Good (661 -780) – Less likely to be denied a loan but will pay more interest and fees compared to excellent score borrowers
- Fair (601-660) – Can still get approved for a financial product, but will not qualify for the best terms.
- Poor (300-600) – Will find it difficult to get approved for many loans and unsecured credit cards.
How to Improve Your Credit
After reviewing your credit if you’ve found yourself in a lower tier than expected don’t worry. You can improve your credit and get bumped into a higher tier before you go through the approval process.
- Start by dealing with any collection accounts or delinquent accounts. As soon as the status is changed to paid-off it can benefit your scores.
- Dispute errors. Mistakes happen, so whether you have information that’s too old to be listed any longer or new errors you can request them to be removed.
- Pay your bills on time. If you miss a payment by 30 days or more, ask the creditor immediately and ask if they’ll consider no longer reporting the missed payment.
- Get your credit card balances in check. A good guideline is to use less than 30% of your limit on any card. So, if your cards are high, make a plan to get them paid down before going through the approval process.
When Spring rolls in and your credit health is strong you can start the preapproval process. A mortgage preapproval helps you understand how much you may be able to borrow, makes you more attractive to sellers, and alerts you to problems that may affect your ability to get a loan. The process of applying for preapproval is quick, and once you have your preapproval letter from a lender you move forward with your house purchase with confidence.
Need Help Tuning Up Your Credit Score?
When you partner with a credit score counseling agency, you can save a lot of time and money, speed up your credit tune up process, and learn strategies that will help you in the long-term future.
Credit Expert LLC has helped countless individuals tune up their credit scores. We can help you raise your credit score to 700 and beyond.