If you’re thinking about buying a house, it’s a good idea to also think about how to prepare your credit for a mortgage. Your credit can affect whether you’ll be approved, and it can also affect the interest rate you’ll be charged. A high-interest rate can cost you thousands of dollars over the term of the mortgage.
A home is probably the biggest investment that you’ll ever make, so it’s important to take your time and get ready. Saving for a larger down payment can reduce the amount you need to borrow, and there are some other steps you can take to make sure your credit is ready for a mortgage.
Pay All Bills on Time
It’s important to be in the habit of paying all of your bills on time, and it’s even more important when you’re planning to apply for a mortgage. If you have any past due balances, get everything caught up. If you have recent late payments, let some time pass before trying to get a mortgage. You should have a payment history of at least six to twelve months without any late payments.
Don’t Apply for New Credit
If you apply for any form of new credit, the potential lender pulls your credit report to evaluate your creditworthiness. This is known as a hard inquiry, and it can show on your credit report for a year. It can also cause your score to drop slightly. While it’s not a big drop, it’s a good idea to avoid doing anything that may cause your score to drop even a few points just before you apply for a mortgage. Another thing to do is to avoid making large purchases that cause your credit card balances to go up.
Pay Down Credit Cards
If you’re carrying balances on your credit cards, try to pay them down before you apply for a mortgage. Even if you always pay your bills on time, your credit may be hurt if you have high balances compared to your available credit. This is known as your credit utilization ratio. If you can pay down the balances on your credit cards, it can reduce this ratio which may help your credit score to go up.
Find Out How Your Credit Looks
As a consumer, you’re entitled to a free credit report each year from AnnualCreditReport.com, and during the pandemic, consumers can request credit reports weekly. Carefully review what’s on your credit reports and make sure there are no errors. A surprising number of people find errors in their credit reports, and misinformation can affect your mortgage application.
Look for errors in your personal information and loan balances. Make sure there are no late payments that are being reported that aren’t accurate and also check that there are not any accounts that you don’t recognize. If you find errors on your credit report, Dovly can help you dispute them. Dovly is an AI credit engine that can help you manage your credit and fix problems as soon as they happen. Try it risk free with our free membership tier. Get in touch with Dovly today.