Hot Take – How to build credit before buying a home

When you’re preparing to buy a home, one of the crucial steps is ensuring your credit is in good shape. A higher credit score can help you secure a better mortgage rate, which can save you a significant amount of money over the life of your loan. Building a strong credit history takes time, but with the right strategies, you can enhance your creditworthiness before applying for a mortgage. Here’s how to build your credit effectively.

Check Your Credit Reports

Start by obtaining a copy of your credit report from the three major credit bureaus: Equifax, Experian, and TransUnion. You’re entitled to one free report from each bureau per year through AnnualCreditReport.com. Review your reports for any inaccuracies or errors, such as incorrect account details or accounts that don’t belong to you. If you find errors, dispute them immediately with the credit bureau.

Pay Your Bills on Time

Your payment history is the most significant factor in your credit score. To build a good credit history, always pay your bills on time. This includes not just your credit card bills and loans but also other recurring payments like rent, utilities, and phone bills. Setting up automatic payments can help ensure you never miss a due date.

Reduce Your Debt-to-Credit Ratio

Your credit utilization ratio — the amount of credit you’re using compared to your credit limit — should be kept below 30%. For example, if you have a credit card with a $10,000 limit, try to keep your outstanding balance below $3,000. Paying down existing debt not only improves your credit score but also makes you more attractive to lenders.

Avoid Opening New Credit Accounts

Each time you apply for a new line of credit, it can cause a slight dip in your credit score due to a hard inquiry on your report. If you’re planning to buy a home soon, avoid opening new credit accounts such as credit cards or auto loans. Similarly, try not to close any accounts, as this can increase your credit utilization ratio and decrease the average age of your accounts, potentially lowering your score.

Keep Older Accounts Open

The length of your credit history plays a role in your credit score. Keeping older credit accounts open, even if you’re not using them frequently, can benefit your score. It shows lenders a longer track record of managing credit responsibly.

Become an Authorized User

If you have a family member with a strong credit history, ask if you can become an authorized user on one of their credit card accounts. This can help you benefit from their good credit habits, as the account’s history will be added to your credit report. However, make sure that the primary account holder maintains good credit habits.

Monitor Your Credit Regularly

As you work on building your credit, it’s important to monitor your credit score and report regularly. This can help you understand how your financial behaviors influence your score and allow you to adjust your actions accordingly. Many credit card issuers and financial websites offer free credit monitoring services.

Consult with a Credit Counselor

If you’re struggling to manage your debt or improve your credit score, consider consulting with a reputable credit counselor. They can provide personalized advice and help you develop a plan to improve your credit.

Building good credit is a vital step in the homebuying process. By implementing these strategies, you can improve your credit score over time, making you a more appealing candidate for a mortgage. Remember, the sooner you start, the better prepared you’ll be when it’s time to make your home purchase. For more credit assistance, reach out to your Choice Mortgage representative today. 

For more information about Choice Mortgage Group, visit www.choicemortgage.com.

Choice Mortgage Group
2424 N Federal Hwy, Suite 100 Boca Raton, FL 33431
(561) 395-6900
info@choicemortgage.com