Buying a home for the first time can be a daunting experience, especially after finding out how much paperwork and information is required to perform the actual transaction – your credit rating will be one of the most important points of consideration. Here are a few simple ways in which you can increase credit score so that your chances of being approved for a mortgage loan are improved.
1. Reduce Outstanding Debt
When applying for a mortgage, all of your existing debt will be taken into consideration, as this will determine whether you qualify and what interest rate will be offered to you. If you have credit card debt, it is essential to pay off as much of it as possible before applying for your mortgage. Other debts such as medical bills, car loans and even student loans will also affect the size of the loan you will be granted. Ensure that as much of your debt is repaid as quickly as possible, as this will help improve your score dramatically.
2. Pay Often
Many companies only require a single payment on outstanding bills each month; however, making payments on outstanding bills bi-weekly or even weekly wherever possible is one of the easiest ways to increase credit score ratings quickly. An added benefit is that by paying more often, you will in fact be decreasing the amount of interest that is being charged on any outstanding account balances as well.
3. Don’t Close Unused Store or Credit Cards
It may be tempting to go through your credit report and close all of the unused store cards and credit cards that are on it. However, closing a number of accounts right before applying for a mortgage will in fact have a negative effect on your credit score – the longer your credit history is, the more chance you will have of qualifying for a home loan. If you feel the need to close accounts that are paid up, rather wait until you have been approved for a mortgage.
4. Get a Secured Credit Card
If you have a low credit score – or worse still, no credit history at all – you can help build one quickly by means of a secured credit card. Unlike regular credit cards, a secured credit card requires you to place an upfront security deposit into it, which is held as collateral by the card company. In many cases, you will be granted credit on it after at least a few months’ of responsible use, which will provide your credit score with the boost it needs.
5. Pay All Bills on Time
Many people think that their credit rating is only affected by credit card, store card and car loan payments. However, utility bills and medical bills are also taken into account when determining a credit score. As a result, all bills that are in your name should be paid on time every month.
When implementing the above mentioned tips for a few months, they will go a long way in helping increase credit score dramatically. It is important to remember that the higher your credit score is, the higher your chances are of being approved for a mortgage and the lower your repayment interest rate will be.