Raising Your Credit Score to Buy or Sell

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A good credit score is very important when applying for a loan to purchase real estate. If your credit score is not quite where it needs to be, in most cases 700 or higher, there are many things that you can do to try to raise it before going to obtain a home loan. Also keep in mind, that the better your credit score, the better the terms for your loan will be. It can take a little time to bump up the score, so it is a good idea to start working on it as soon you are feeling serious about purchasing real estate.

Credit card bills play a huge role in your credit score. Take a look at your balances and try to pay them down as much as possible. Also be sure that you are making those payments on time. Consistently late payments can really ding a credit score. On time payments are not only important for your credit card bills, but also your car payments, student loans, and other debts. Think about it, a home mortgage company will definitely want their payments on time. Show them that this is possible by paying your other bills on time. Set up auto pay for as many bills as possible so you don’t have to worry about it.

Understand How Your Credit Score Works Before Shopping for a Home
Lenders are going to look at your debt to income ratio. This refers to how much money you earn versus how much money you owe. The more you owe already, the higher the ratio, and the less money you will qualify for in a home loan. It’s important to pay down as much debt as you can before applying for a loan.

There are a few methods people can use for wiping out debt. One is called the “avalanche” method. Using this method, make a list of all outstanding loans listed from the highest to lowest interest rate. Make minimum payments on all loans with lower interest rates and throw as much money as you can at paying off the loan with the highest interest rate. Then work your way down the list.

Another idea is called the “snowball” method. Again, make a list of all debts, but this time write them in order of amount owed from least to greatest. Pay the minimum amount on all loans except for the one with the smallest balance and then pull all resources to pay off that one loan as soon as possible. Once that one is paid off, put the money that was going to that lowest balance to the next lowest balance and keep the snowball going.

A final method of mention is the “snowflake” method of setting aside all extra money for paying off debt. Skip the morning coffee drive through, save the $10 rebate, turn down the thermostat, and put every extra dollar toward paying off debt.

Make the commitment to improve that credit score. Work hard to get it where it needs to be so that you can find the perfect home!