New Year, New You, New Home
Work on your credit to qualify for homebuying
by MIKE HALL, Owner/Agent/Broker
Every year, millions of people make a New Year’s resolution. Some want to lose weight. Some want to kick a bad habit. Others want to find a better job. Is yours to buy a home?
Home buying relies on getting approved for a mortgage using your credit score or FICOâ score. Your FICOâ score determines how much you can borrow, and if you would be approved at all. What can you do to make sure you have a high FICOâ score?
The first step to improve your credit score is to get a copy of your credit report from the three reporting companies – Experian, Equifax, and TransUnion. For information on requesting a free copy of your credit reports, go to the Consumer Financial Protection Bureau. Check for outstanding debt, payment history, debt in collections, and any inaccuracies.
What information is in your credit report?
- Personal information; including name, birthdate, social security number, address, and phone number
- Employment history
- Consumer statements, such as statements you’ve submitted previously to credit bureaus
- Account information; including open accounts, closed accounts, dates those accounts were opened/closed, payment history, current account balances, loan payment status, and credit utilization. Credit utilization is how much of your available credit is used at any given time.
- Public records, such as bankruptcies, foreclosures, tax liens, or civil judgments
- Hard credit inquiries
Now that you have your credit reports, how can you bring up your score?
- Set up auto bill pay. Avoid late and missing payments by setting up automatic bill pay through your bank or the credit card company. Just be sure you have enough money in your account when the payment is scheduled to come out.
- Pay down your balances. If you have a lot of debt, especially on high-interest credit cards, pay those balances down. One way to help is to transfer balances from high-interest cards to a card offering no interest on transfers for 12-18 months.
- Pay off debt in collections. If you have debt in collections, work with processors to pay off the debt.
- Clear up medical debt. If some of the debt is due to medical bills, work with the billing agency of the provider to lower the payment or get it dismissed. In April 2023, the No Surprises Act went into effect. The act required that all three reporting companies must remove all paid medical debts, those less than a year old, and medical collections under $500 from consumer credit reports.
- Dispute credit report inaccuracies. See inaccuracies in your credit report? Work with credit agencies to fix any issues.
- Build credit. If you need to build credit due to having had no previous credit or bad credit history, apply for a secured credit card. A secured credit card requires a cash deposit which is the limit of what you can purchase on the card. This creates a credit history but prevents you from acquiring a high debt amount that may be difficult to pay off.
- Get credit for monthly bills. Experian Boost, a free service, allows you to add monthly on-time bill payments for rent, utilities, phone, etc. The caveat is that it only affects your Experian credit report. Check with your landlord to see if they participate in a rent reporting service or use a reputable third-party service to report your rent payments.
- Keep old accounts open. While it may be tempting to close old credit card accounts you no longer use, it’s better to keep it open. It impacts your credit to debit ratio in a positive manner.
- Pay off credit cards monthly. Many individuals like to use credit cards for the rewards points. If you do, be sure to pay the cards off monthly or even weekly to avoid interest charges and increasing your debt.
- Apply for loans within a short time. Applying for a loan hits your credit report as a hard inquiry. When credit bureaus see multiple applications for the same type of loan within a short time, they tend to group them into one instead of multiple inquiries.
For more tips on increasing your credit score, check out these sites and talk with your Red Edge real estate agent: