5 Essential Tips for Enhancing Your Credit Score Before Home Shopping

Think of your credit score as your report card when shopping for a house. Just like in school, higher scores can open better opportunities for your future. In the mortgage world, getting a good “grade” (or credit score) can be your ticket to not only getting approved for a mortgage but also snagging a lower interest rate.

Many experts suggest starting to improve your credit score three to six months in advance to shopping for a home. If you’re working with a less-than-ideal credit score, this gives you ample time to sort out any issues and avoid unnecessarily high interest rates.

So, before you start searching for homes, it’s a smart move to check out that credit score and see where you stand. Use the five following tips to improve your credit score before shopping for the perfect house.

1. Continue Making Monthly Payments on Time

This may seem like a no-brainer, but the most important contribution to your credit score is showing a history of consistent monthly payments. This carries 35% of the weight of your credit score! The credit bureaus consider a person’s ability to keep up with debt payments to be the greatest indicator that they can pay back a loan. 

Set up autopay on your credit card and debt obligations, or by using automatic transfers from your bank account to your bills. This way, you won’t have to worry about having to remember to make manual payments. 

2. Check Your Credit Reports and Scores

Federal law allows you to get a free copy of your credit report every 12 months from each credit bureau. Lots of sites promise credit reports for free, but AnnualCreditReport.com is the only website that is authorized to deliver the free annual credit reports you are entitled to by law. Don’t be fooled — other sites offering free credit reports may want to sell or misuse your personal information.

After obtaining your credit report be sure to check that the information provided is accurate and up to date. Common errors on your credit report include misreported late payments, collection accounts that are still open despite being paid off, or an ex-spouse still listed on your report. 

3. Dispute Any Errors on the Credit Report

If you find an error on your credit report, reach out to the credit bureaus reporting the error (Experian, TransUnion, Equifax) to initialize a dispute claim. These can be started at each credit bureau’s respective website, or if you prefer by phone or mail. 

File disputes with each credit bureau individually and prepare to submit any evidence you have to support your dispute. Typically, disputes are resolved within 30 days, and if they are approved, you may see a boost in your credit score. 

4. Be Mindful of Your Credit Card Balance

It is important that your credit cards are not maxed out. Another large determinant of your credit score is your credit utilization, or the percentage of your total credit used from the total credit available to you. Your credit utilization ratio should be 30% or less. If you want to boost your credit score quickly, following credit utilization ratio of 10% or less will yield a sharper increase to your credit score. 

For example, if you have a credit card with a $10,000 limit, be sure to spend less than $3,000 per month on that card for 30% utilization or less than $1,000 to keep the credit utilization under 10%. 

Lastly, never carry a balance on your credit card and ensure it is paid off in full every month. The impact of not paying in full each month depends on how large of a balance you are carrying compared to your credit limit. If your utilization exceeds 30%, your credit score will be penalized. 

5. Avoid Closing or Opening New Accounts

Another important factor in determining your credit score is the average age of your credit history. The credit bureaus like to see a long history of managed accounts. Closing a credit account, especially one that has been open for some time, is not recommended – even if the credit card is paid down to zero. Use that credit card to make small purchases from time to time to avoid the account going inactive.

The last important factor in determining your credit score is the number of credit inquiries on your credit report. If you have a history of applying for credit multiple times within the previous 3 months, you may see a reduction in your credit score. It is best advised to avoid applying for new credit until after you have completed your real estate transaction. Always talk to your loan officer before applying for new credit during the mortgage process, or you may jeopardize your loan qualification.

In Summary

Buying a home is the biggest purchase of your lifetime. Your credit score is your ally, helping you secure lower interest rates. So, give your credit score the attention it needs, and you’ll be on your way to securing your dream home affordably!

Reach out to me, John Stengel, for a complimentary credit analysis tailored specifically to you. Simply send me an email with the subject line “Credit Analysis” to see what improvements you can take to boost your credit score before embarking on your home buying journey.

You can reach out to me, John Stengel, directly by phone at (808) 490-8343, by email at john.stengel@elementmortgage.com, or by sending me a direct message on Instagram or Facebook @johntheloanranger. I’m a mortgage consultant at Element Mortgage, Hawai’i Life’s preferred lender, and I’m here to help!

With Aloha,

John Stengel