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Credit scores take a long time to increase, but it’s worth taking some steps to increase yours, especially if you’re in the process of buying a home. A mortgage will eventually build your credit, but it may make your credit score drop at first since your lender will have to run a credit check. Follow these steps to keep your credit score up during the process.



Make Payments on Time


Your payment history accounts for the largest portion of your credit score: about 35%. So it’s crucial to get caught up on any late payments and make all future payments on time. Most companies have an option to auto-pay your bills or set up payment reminders, so take advantage of those to stay on top of it. A money management tool like Mint can also help.




Avoid Applying for New Credit You Don’t Need


Opening new accounts will lower your average account age, which can hurt your length of credit history. Plus each time you apply for a new line of credit, it can make a small decrease in your credit score. If you need to get a new credit account (like a car loan), be sure to complete your loan applications within a short period of time so it doesn’t look like you’re trying to open several new lines of credit.


However, if you don’t have any credit cards — or any credit accounts at all — you should definitely open an account to establish a credit history. Certain lenders are better able to work with people with no credit, so be sure to ask your real estate agent what they recommend.



Pay Down Credit Cards



When you pay off your credit cards, you lower what you owe, thus lowering your credit utilization ratio (the ratio of your account balances to your credit limits). Some people recommend starting with your highest-interest debt and paying that off first, but others say paying off your lowest balance first is the way to go. Then you can roll that payment into your next-lowest balance to create momentum.


Make a list of all your credit card balances and tackle them one by one. Make the minimum payment on all of your cards except one — pay as much as possible on that card until it’s fully paid off, then cross it off your list and move on to the next card.



Avoid Closing Old Accounts


Unfortunately closing an old account won’t remove it from your credit report. In fact, it can even hurt your credit score, as it can raise your credit utilization ratio. You’ll have less available credit, and your average length of credit history will drop.


Paying off a collection account won’t remove it from your report either. This will stay on your credit report for seven years, but the impact it has on your credit score will decrease over time.



Correct Errors on Your Report


Mistakes and fraudulent activity can hurt your credit score, so it’s a good idea to check your credit report at least once a year. The FTC has a good overview of how to dispute errors on your credit report.



It takes time and work to raise your credit score, but it’s well worth it. It’ll help you qualify for a mortgage and secure a lower interest rate on car loans and credit cards too. You might even qualify for lower rates on insurance premiums.


I’m happy to talk through your current credit situation and how it might play into buying a home in Mammoth Lakes. Contact me to get started.




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credit scoreI am frequently asked, do I need a good credit score when taking out a mortgage?

A good credit score will mean that you qualify for the best loans, rates and terms.  This great advantage will gradually save you money through reduced rates over the lifespan of a loan.

As an example, a credit score of 620 or below would mean that the person looking to borrow would be categorized as a “sub-prime” borrower, whereas a credit score of 720 would mean that the borrower would be eligible for more favorable loan conditions.

Here are some simple tips to repair your credit score:

1. Get a credit card from a major company.  Before you go crazy, it is important to note that using a credit card and keeping a balance on one are two totally different matters.  Experts suggest using it for things like gas that you will pay off on a monthly basis.

2. Get a prepaid credit card.  If you don’t trust yourself to use a credit card wisely or just don’t want one, then you should get a prepaid credit card.  This gives you a way to use a credit card without the temptation of running up debt.

3. Be patient.  Although it is difficult, it’s important that you understand the process of repairing you credit won’t happen overnight.  Slow and steady wins the race when it comes to your credit score.

4. Check your credit score.  It is very important that you understand that your credit report is accurate.  So, checking the three credit bureaus on a regular basis is wise.  These include Equifax, Experian and TransUnion.  You want to know if anything incorrect is on your credit report so you can fix the situation before it damages your credit.

Source:  The Real Estate Book

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