Your credit score is one of the most important parts of getting a mortgage, but it's also one of the easiest parts to control. Making small changes in how you handle your debts – some of which won't even cost you anything – can make a difference in your score, and get you qualified or get you a lower interest rate. Take steps to minimize your stress about getting a home loan.
Here are seven ideas for how you can positively impact your credit report and get approved:
- Do no harm. The first factor to keep in mind is that you don't want to do anything that could change your score negatively during the home loan process. Keep paying your bills on time, don't change your job, don't take out new debt and don't increase your debt balances.
- Fix credit report errors. If there are errors on your credit report, one of the best ways to improve your credit is to work with the companies that report them to get them corrected. Your loan officer may be able to help you build a strategy to determine which errors to work on first, as well.
- Pay down credit card balances. Paying down balances may help you in two ways. First, it lowers your monthly payments which can make your debt-to-income ratio look more attractive. Second, it lowers your credit utilization rate, which can make your credit score go up. The less of your credit you use, the better the risk you become.
- Bring past-due accounts current. If you have accounts that are late but that have not yet gone into collections, bringing them current can stop them from doing more damage to your credit report. As they transition back into on-time status, it could stop them from hurting your score further.
- Use your credit cards less. Another way to show lower utilization is to simply use your credit cards less. You can simulate lower credit card usage by paying them down in the middle of the month. That way, your statement shows lower balances.
- Increase credit limits. Another way to make your utilization look better is to call your credit card lenders and ask for a higher credit limit. If you owe $1,000 on a $2,000 limit, you're using 50 percent of your limit, but if you can get an increase to $3,500, your utilization drops to 28.6 percent. Be careful doing this as your credit card lender may pull a "hard inquiry" that shows up on your credit report.
- Apply for a new credit card. While the usual rule of thumb is to not change anything about your credit, adding an additional credit card can be one of the ways to improve your credit since it also lowers your credit utilization. To make sure that this strategy is appropriate for you, talk to your loan officer before making any applications.