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7 Tips to Improve Your Credit Before Applying for a Mortgage

7 Tips to Improve Your Credit Before Applying for a Mortgage

June 24th, 2020 | Credit

In addition to income and assets, your credit profile is one of the biggest factors in determining whether you qualify for a mortgage. If your credit score is not currently in a desirable range, there are plenty of ways you can improve it to up your chances of home loan approval. Here are the top seven:

  1. Check your credit reports for accuracy
    According to a study from the Federal Trade Commission, one in five people have an error on at least one of their credit reports. Many errors do not substantially affect credit reports, but some can significantly lower scores. By law, you can obtain a free copy of report from each of the three major credit bureaus once every 12 months. Carefully checking each one and reporting any errors can help keep your score at its best.
     
  2. Make on-time payments
    How often you pay your bills on time accounts for a large percentage of your credit score. Even one late payment can lower your credit score by as much as 100 points and it can stay on your record for seven years. Of course, the effect of any single late payment will decrease over time, but the best way to improve your score is to make consistent, timely payments. You could even set phone or email reminders for yourself to avoid paying late.
     
  3. Add other credit accounts
    If you are just getting started in the world of credit, your score might benefit from linking other credit accounts like your utility or phone bills to your account. Experian reports that of the 1.3 million U.S. consumers who have used the free linking tool, roughly 840,000 experienced an increase in their credit scores.
     
  4. Keep your balances low
    Credit bureau formulas grade you higher if you are not consistently maxing out your credit limits. A good rule of thumb is to keep your account balances to less than 30% of your limit. If you can go lower, you’ll do even better – Americans with perfect credit on average only use about 7% of their credit limits regularly.
     
  5. Build a credit history
    The longer you have been responsibly using credit, the better your score will be. In fact, about 15% of your credit score is decided by the age of your credit profile. It may take several years before your score reaches peak levels. Start by applying for a credit card, making purchases and paying off the balance in full each month. Opening a checking and savings account with a bank if you haven’t already will also help you build a credit history.
     
  6. Don’t Close Unused Credit Accounts
    Say you have a credit card that you never use anymore. While you may be tempted to close out the account, it may be best to keep it open and unused. Closing it would increase your ratio of debt to available credit lines and could pull your score down.
     
  7. Guard against outside inquiries
    When your credit report is run by companies or lenders during a loan application process, you could see your score drop. This is because the credit bureau formula assumes you are trying to take on more debt. If you are shopping for a mortgage or car loan, try to have any credit inquiries made withing a 45-day window and the bureaus will count them all as just one credit ding.

You will be much more likely to qualify for a mortgage and to get better interest rates if you take some time to improve your credit score before applying. Give us a call today at 847-257-7278 and we can put you in touch with professionals that offer to help you improve your credit score.

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Prime 1 Bancorp, Ltd is not affiliated with any government organization or bank nor do we act on behalf of the FHA or VA. This material is not from HUD or FHA and has not been approved by HUD or a government agency. We are not a Federally chartered or State Chartered Bank. We are an we are an Illinois Residential Mortgage Licensee by the Office of Banks and Real Estate Lic #MB.6761138, a California CFL Licensed Mortgage Brokerage by Department of Business Oversights Lic #60DB055973, a Colorado Registered Mortgage Brokerage by Division of Real Estate, a Florida Residential Mortgage Brokerage Licensed by the Office of Financial Regulation Lic #MBR1930 dba Prime 1 Mortgage Inc, a Kentucky Mortgage Loan Broker Licensed by the Office of Financial Institutions Lic #MB729362, a Tennessee Licensed Mortgage Broker by the Department of Financial Institutions Lic #218020, a Texas SML Licensed Mortgage Brokerage by the Texas Department of Savings and Mortgage Lending, and a Wisconsin Licensed Mortgage broker by the Department of Financial Institutions Lic #1434638BR Prime 1 Bancorp, LTD Corporate Office is located at 2720 S. River Rd Suite 50, Des Plaines, IL 60018 our Toll Free Number is 888-205-3737. NMLS: 1434638

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"CONSUMERS WISHING TO FILE A COMPLAINT AGAINST A COMPANY OR A RESIDENTIAL MORTGAGE LOAN ORIGINATOR SHOULD COMPLETE AND SEND A COMPLAINT FORM TO THE TEXAS DEPARTMENT OF SAVINGS AND MORTGAGE LENDING, 2601 NORTH LAMAR, SUITE 201, AUSTIN, TEXAS 78705. COMPLAINT FORMS AND INSTRUCTIONS MAY BE OBTAINED FROM THE DEPARTMENT’S WEBSITE AT WWW.SML.TEXAS.GOV. A TOLL-FREE CONSUMER HOTLINE IS AVAILABLE AT 1-877-276-5550.

THE DEPARTMENT MAINTAINS A RECOVERY FUND TO MAKE PAYMENTS OF CERTAIN ACTUAL OUT OF POCKET DAMAGES SUSTAINED BY BORROWERS CAUSED BY ACTS OF LICENSED RESIDENTIALMORTGAGE LOAN ORIGINATORS. A WRITTEN APPLICATION FOR REIMBURSEMENT FROM THE RECOVERY FUND MUST BE FILED WITH AND INVESTIGATED BY THE DEPARTMENT PRIOR TO THE PAYMENT OF A CLAIM. FOR MORE INFORMATION ABOUT THE RECOVERY FUND, PLEASE CONSULT THE DEPARTMENT’S WEBSITE AT WWW.SML.TEXAS.GOV.