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Applying for a Mortgage

5 Important credit steps to take first

Portrait of a smiling man checking bills on the tablet at home

Applying for a mortgage is a big step in your home purchase. Your rate has a significant impact on the overall amount you’ll pay over the years. While credit may not be your focus on a daily basis, it is something to look at as early as possible in the home-buying process.

If you know you want to enter home ownership or buy a new house in the near future, start planning right away. Applying for a mortgage should be at the top of your list, and as part of that, you’ll need to take a few credit steps before you begin the application process.

What affects your credit score?

Before taking the steps to optimize your credit when applying for a mortgage, you’ll need to know what affects your score. Payment history has the biggest affect, followed by amount of debt (or credit utilization ratio), age of credit accounts, mix of credit accounts, and number of inquiries. Of course, any liens or collections can have a big impact as well.

Step 1: Pull your credit reports

Information is key in the credit game. Consumers have access to a free credit report every year from each reporting agency. Some key things to look for include your payment history, balances, collections, or for anything that doesn’t belong on the report. If you are able to get your scores, that is highly beneficial as well. However, many credit card companies have your credit score available within your account, or you can use a website like Credit Karma.

Step 2: Challenge any mistakes

If you see anything on your credit report that doesn’t belong there, start the process of having it removed. You’ll want to write letters to the agencies and offer proof or supporting documents. According to Credit.com, 1 in 5 Americans have mistakes on their credit report. These mistakes can affect your ability to get a mortgage and your rate. A simple online search will give you many strategies for having these mistakes removed, including general letter templates to the credit reporting agencies that you can personalize and use.

Step 3: Pay down balances

Mortgage lenders balk at high balances. If your loan or credit card balance is maxed, then take some time to get it paid down or paid off before applying for a mortgage. It never hurts to take a few months or more to work on boosting your credit before buying a home. Get creative in finding extra money to pay down these balances. Have a yard sale or sell off unnecessary household items, take a side job, or cut some of your daily luxury costs. Each dollar you can pay down will also improve your overall financial health.

Step 4: Make all your payments on time

If you haven’t been good about making your payments on time, begin to do so right away. Make it a priority. While you’ll have some opportunity to explain rough patches in your credit history, you’ll want a good stretch of on-time payments to support your reliability. Mortgage lenders take a close look at on-time payments. After all, that’s what they’ll be expecting from you.

Step 5: Pay off any collections

Any collections or liens will reflect negatively on your credit. Pay them off right away. If you need extra money, use the same strategies to earn extra money listed above.

Your credit can save you thousands and make getting a mortgage easier. Spend some time taking steps toward optimal credit before applying for your mortgage – it will pay off in the long run.


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