Creditors report to the credit agencies every 30 days. By making a few changes this month, you can bring your credit score up instantly and look fabulous to potential mortgage lenders. Follow the tips below, and you can get pre-approved for loans you will be happy to live with.
Clean Up Your Credit Report
- Bring your credit balances current. By simply paying the minimums within 30 days of your due date, you are being reported as “on time” to the credit companies. This affects 30% of how your score is calculated.
- Pay all of your balances on time within a 12-month period. This simple action will make you an “A-Paper” borrower, something lenders consider just as important as your score. If you are an “A-Paper” borrower, you will get approved for the very best mortgages. Timely payments also affect 35% of your credit score.
- Do a credit clean up and have negative items removed from your credit report. Pull your credit report and dispute every negative item by stating, “This is not my account” or “I was never late.” Anything your creditor does not verify within 30 days will be removed from your credit report bringing your score up as much as 200 points by next month.
- Try to make it through three to six months without applying for new credit. The fewer inquiries you have in a 12-month period, the more attractive you look to a loan broker.
Change Your Debt Ratio (The Amount of Credit You Owe Divided by the Amount of Credit Available to You)
- Bring your Debt Ratio to 35%. Pay down as much as you can on your credit cards and lines until you owe $350 or less for every $1,000 available. Every month that your Debt Ratio is below 35% is a month that your score will go up.
- Raise your credit card limits. By having your limits raised, you are quickly bringing your Available Credit up and your Debt Ratio down without dipping into your own pocket. This can put you below the desired 35%, which accounts for 30% of your total credit score.
- Put paid off cards away instead of having them closed. 15% of your credit score is based on how long you've had credit. By keeping accounts with $0 balances open, you are increasing your credit history and being reported as “on time” every 30 days.
Make Yourself Appear to be Responsible with Credit
- Keep open different types of credit, such as student loans, car loans, lines of credit, or business loans. 10% of your credit is based on the variety of credit accounts you have.
- Ask your creditors to lower your interest rates. When applying for a mortgage, lenders look at how much you pay monthly and factor that into how much of a mortgage payment you can afford. By lowering your interest rates, you are lowering the total monthly payments that appear on your credit report, and raising the amount of money they will be willing to lend you.
- Pay your car balance down to one year. If you only have one year's worth of payments left on an auto loan, mortgage lenders will ignore that debt. By ignoring the debt, you will be qualified for a higher loan amount.
Remember, knowledge is power. A pre-approval letter is knowledge, and it gives you bargaining power. By cleaning your credit before applying for a mortgage, you can bargain for the best loans, and make the most desirable home offers. Do these things before applying for a loan, and soon you will be sitting in the home of your dreams.
