Having a good credit score is not essential for buying a house. There are programs out there that help people with bad credit become home owners, but the better your credit score, the less expensive your loan will be. Check out these credit-building tips for first-time home buyers to boost your score.
Pay down your credit card balances. Credit utilization is how much of your approved credit you’re using, and your credit utilization rate makes up about 30% of your score. The higher your usage, the lower your score. Most experts recommend to keep it under 30% to maximize your credit score.
Remove late payments & collections from your report. Payment history has the largest impact on your credit score at 35%. Even just one late payment can bring your score down. As a late payment ages, its negative effect lessens, and after 7 years, it drops off entirely, but there are a few ways to get them removed sooner: call the creditor to have it removed if it is an error; contact creditor as soon as you realize it’s late and ask them not to report it; or dispute it with the credit bureau.
Become an authorized user. An easy way to give your score a “boost” is to borrow someone else’s. You can do this by becoming an authorized user on the account of someone with an excellent credit score.
Don’t apply for a new credit card for 6 months. Every time you apply for a new card, your score takes a hit. Also, your score takes the average age of accounts into consideration. A new card may dip you just below a lender’s cutoff for a better rate.
Get free credit reports. Take advantage of free reports which can show you where you need to improve.
Take advantage of Programs Like FHA. If you have a score of at least 580, the FHA allows you to apply for a loan with a mere 3.5% down payment. If your score is lower, you can still apply with 10% down.
Buying a home is an exciting time. Don’t be discouraged by bad credit scores. There are many options out there for those with less than stellar credit, and if you start the credit-building today, you can help set yourself up financially for later. A higher credit score allows you to qualify for better terms on a loan, which will save you a bundle in the long run.