Credit Tips for Homebuying

As a potential homebuyer you should look to prioritize paying down different debt accounts and get your debt to income ratio as low as possible. There is no general rule of thumb but what will be most significant in helping you achieve good credit is eliminating bad debt from your credit report and keeping a low utilization rate. After you eliminate bad debt you’ll start to see a noticeable improvement in your credit score within about 30 days give or take (it depends on the reporting cycle of each account and how long exactly the credit bureaus take to report the updated balance).

Opening a Joint Account

Opening a joint account with a spouse or loved one can help raise your score, however “good credit” doesn’t just transfer over to you. What ends up happening is that your credit will become associated with their credit over time. This isn’t an instantaneous process but rather something that takes months for a noticeable difference to occur. Although having a joint account will be better for your credit worthiness even being an authorized use on the account will lead to credit improvements! What’s most important is the standing of that account, it’s available line of credit/utilization, and the length of time it’s been opening.

Becoming an Authorized User

If you are become an authorized user on an account that has good standing, you will see an improvement in your score overtime since you are also now associated with that account. Similar to having a joint account, this will have a positive impact on your credit worthiness.

Opening Secured Accounts

Having secured debt accounts on your credit report will help diversify your credit portfolio. Whether it’s a secured credit card or a credit builder loan, a secured account will help keep your credit diverse and ideally raise up your credit score.

Paying Down Debt Early

If you are almost finished paying down a particular loan or installment loan, you should consider paying the account down to a $0 balance if it’s near the end of its term. The impact to you score will be much more significant and you’ll have successfully lowered your debt to income ratio as a secondary benefit to the credit improvement. Finish paying down any installment loan accounts, auto loans or student loans that are close to paid off and you’ll be a stronger homebuying candidate.

Maintain a Low Utilization Rate

The best thing for anyone buying a home to do before they do that hard credit check is to make sure they are reporting a $0 balance to Transunion, Equifax and Experian on all revolving lines of credit and credit cards. Keeping a 0% utilization rate on all credit card accounts, especially before applying for the mortgage and doing the hard credit pull will definitely be to your benefit. This way you know that you are showing the maximum amount of available credit on the date of the report and a 0% utilization rate.

Payoff Student Loans

Student loans tend to have a very long amortization and due to this they can remain on your credit report for years and years. If you are closed to paying off a particular loan it’s typically to your benefit to put extra money towards it so that you lower your debt to income ratio.

Purchasing a home isn’t easy and when the time comes there’s a lot of preparations you need to make for it including focusing on a home down payment. However, it’s important you stick with it and use your knowledge to help make the process as smooth as possible and get the best interest rate possible.