5 Ways to Boost Your Credit Score So You Can Buy a Home

Getting a low-interest rate is part of getting a good deal on a home. And, as we saw in our recent article, 7 Little Tricks to Get a Lower Interest Rate, boosting your credit score is one of the best ways to get the lowest possible rate under any market conditions. 

However many buyers are unsure how to go about improving their credit scores.

So today, we want to show you five simple things you can do to give your credit score a boost and get you one step closer to your dream home!

Errors on credit reports are surprisingly common. According to the Consumer Financial Protection Bureau, as many as one in five Americans have found an error in their reports. And errors can negatively impact your credit. 

Review your credit report from the three credit reporting bureaus (Equifax, Experian, and TransUnion) to make sure there are no inaccuracies about outstanding balances or late payments. 

Your payment history is the single most important factor in calculating your credit score, as it accounts for 35% of your FICO score. So paying your credit card bills, loans, utilities, and rent on time directly impacts your credit score.

Late payments and missed payments will quickly drag your score down while making payments promptly will increase your score over time.

If you have any accounts that are past due, make those payments immediately. 

Furthermore, if you have any accounts in collections (which means that your original lender has sold your debt to a debt collector), contact your debt collectors to negotiate a payoff. In many cases, debt collectors would rather have a guarantee that some of the balance will be repaid rather than keep pushing for payment in full. So you might be able to get that account out of collections without paying the full balance due. 

Credit utilization is the ratio of your total debt compared to your open lines of credit. For example, if you have a credit card with a $10,000 limit, and you have a balance on that card of $4,000, your utilization for that card is 40%. 

Lenders generally like to see credit utilization of 30% or less. If you’re currently over that percentage, you have two options:

1. Pay down your balances to get them below the 30% point. And/or
   
   
2. Contact your creditors to ask for a higher credit limit. 

Getting a higher credit limit will reduce your utilization ratio automatically as long as you don’t charge anything new to the account.

Using our example above, if you can get your $10,000 credit line raised to $12,000, your $4,000 balance is now just 30% of your available credit limit.

Opening a new credit card account or loan temporarily knocks a few points off your credit score. This is because “length of credit history” is one of the metrics for determining your credit score. Opening a new account brings the average length of your active accounts down. 

Similarly, closing old accounts will reduce your credit score. Many credit card users are surprised to learn this. Once they pay off a credit card, for example, they might want to close that line to avoid being tempted to charge more to that card. But closing that open credit line brings the average length of your accounts down, which reduces your credit score. You’re better off cutting up the cards and removing the data from your digital storage systems while keeping the line open.

A real estate agent can do so much more for you than simply showing you homes. Agents who understand the big picture work to get you the best terms possible on your home purchase. And that means understanding all the factors that make homeownership more accessible, including credit scores. 

The experts at Sequoia Real Estate understand the big picture of buying, selling, and renting. And we would be happy to sit down with you to create a realistic plan to get you into a home you love. Contact Sequoia Real Estate today to schedule a free, zero-pressure consultation!