It goes without saying that most home buyers rely on a mortgage loan to complete their property purchase. Unless you’re paying all cash, you’re limited by two things: Your income, and your credit score. You may not have much control over how much money you make, but you do have control over your credit score…IF you take the right steps.
Aside from how much money you make (and how much you spend), mortgage lenders use your FICO (Fair Isaac & Company) score to determine your credit worthiness. The higher the score, the more “worthy” you are deemed. Higher credit scores can open up more options for you such as a lower interest rate or better loan terms. Typically, a FICO score of 700 or more is considered a good thing. Anything below alerts lenders to a potential credit risk.
That’s not to say you can’t get a loan if you have a lower credit score, but again, your options may be limited to a higher interest rate or terms not quite as favorable. So what can you do to improve your credit score? Here are the top things you can do to start.
1. Obtain copies of your credit report.
There are three main agencies that lenders use when verifying your credit. They are TransUnion, Equifax, and Experian. You are allowed to obtain one free credit report per year from each of these agencies. Upon receipt, go through each report to make sure that all of your credit information is accurate. Look for any discrepancies in delinquency reporting, and make sure that ALL of the credit accounts reported are actually yours. In rare cases, reports can incorrectly attribute someone else’s credit account to your report.
2. Dispute discrepancies that do not belong to you.
If you see discrepancies, outstanding balances on paid off accounts, or derogatory account information on any of your credit reports, you can dispute them with each agency. They will then contact the corresponding credit company and, if the discrepancy is invalid, remove it from your report.
3. Pay your monthly obligations on time.
This should be a given, but we’re always surprised at how many people don’t think this is such a big deal. Late and delinquent payments will show up on your credit report, and affect your overall FICO score.
4. Pay down your debt.
High debt ratios can affect your credit score as well. If you’re determined to buy a home, put together a plan to include a faster track to paying down some of your higher credit balances.
5.Limit your credit purchases.
This is especially important before you apply for a mortgage, and even more important during the escrow process while your loan is receiving final approval. Making large purchases such as appliances and automobiles will affect your credit score, and it is one of the biggest reasons why buyers ultimately are turned down for a home loan, forcing them to cancel their home purchase.
Is it time to buy a home? Team Avalos is your real estate source for your move to the Santa Clarita or San Fernando Valley. Contact Carlos or Rose today for a no obligation discussion about your real estate goals.
Team Avalos Real Estate
Keller Williams VIP Properties
25124 Springfield Court, Suite 100
Valencia, CA 91355
Office: (661) 290-3743
Carlos direct: (818) 399-4093
Rose direct: (818) 590-2077