Before beginning a home search, I always advise my clients to work on their credit score first. To get a good interest rate you will need a score of 740 or higher. This is because lenders give the best rates to those with excellent credit as they pose the least amount of risk.
You’ll want to know your credit score well in advance of buying a home, so you have time to start improving your credit if your score is low. If your score is good, it won’t take too long to rebuild and improve your score. Here are 5 tips to help boost your credit score before you buy your Austin home.
1. Check for errors
This is a must as credit score errors are common and can include things such as missed or late payments which can lower your score. Do a free credit check report and look it over with a fine-tooth comb. Report discrepancies first to the lender so they can fix them. You can then send proof to the credit bureaus to have them amend the report. This can take a few months, so do it as soon as you can.
2. Pay off your debt
This is very important as the debt you carry accounts for 30% of your credit score. Positive credit needs to be built and having credit cards is the easiest way to do this. You want to use your credit cards for purchases and then pay the balance right away so you can build up a good credit score. If this is your only challenge, by paying down debt just before the next bank report goes to the credit bureaus you can raise your score in just one month. Your goal should be to pay your balances down to 1% of your credit limit.
3. Keep credit bills current
First, anything you have outstanding for your bills should be paid right away. This includes utilities. Late payments are a real negative for credit scores. Then continue to make sure you pay all of your credit bills on time and remain current. If this is your main issue it will take up to two months to see an improvement to your credit score.
4. Apply for a new credit card
Having a credit mix is important to your credit score. This shows you can manage your credit effectively. By applying for a new credit card, you can increase your total outstanding credit line, and show the credit bureau you are able to manage credit well. This can help improve your credit score in as little as one to six weeks. Of course, you should not start to build up what you owe using the card! You should also not start applying for credit all over. Just one will suffice as several applications can actually lower your credit score.
5. Become an authorized user
An authorized user for credit cards means you have permission to use someone else’s card. This is good as long as it is someone who pays their bills on time. This can be your parents or partner for example. You will benefit from their good credit history and improve your own credit score. The good news is this will show improvements immediately.
Beware: If they don’t pay on time or carry a high debt, this will lower your score.
As a bonus tip: Avoid closing credit card accounts as this could increase your credit utilization ratio which can lower your score. (If you are cancelling your cards because you don't use them and they are charging you a fee, then closing the account makes sense.)
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