Get Credit Ready In 5 Steps
You’re thinking of buying a home and getting a mortgage. (YAY!)
One of the best things you can do is prepare yourself to be financially healthy. We’ll go over five tips to help you get credit ready:
5 Step Credit Ready Guide
- Check Your Credit Report
- Have 2-3 Tradelines
- Leave Old Credit Lines Open
- Avoid Opening New Credit Lines
- Stop Buying On Credit
Now, on to the good stuff…
1. Check Your Credit Report
Mortgage Lenders will take your middle FICO credit score as part of what will determine your mortgage rate. So it’s important to know where you stand.
Generally speaking, if you pay your bills on time and don’t have any prior credit blemishes, you could check your credit 2-3 months before getting a pre-approval. If your credit history isn’t as healthy, try to check your credit at least six months in advance.
If after reviewing your credit report you find some errors (maybe you paid something off and it’s not recorded), you’ll want to file a dispute with the agency/agencies (either Equifax, Experian and/or TransUnion). Doing so may help to improve your credit score.
2. Have 3 Tradelines
On average, Conventional loans (usually a downpayment of 5%-20%) and FHA loans would need at least three tradelines or lines of credit (credit cards, car loans, student loans, 12 months worth of rent checks, etc.) that would have to have been active within the past 12-24 months.
It gives the lender some insight of how you manage your money and credit. Having tradelines will help you qualify for a rate and program.
3. Leave Old Credit Lines Open
If you have some older, more “seasoned” (lines of credit in good standing for at least 1-2 years), don’t close them because you haven’t used them. Having open good standing lines of credit actually helps lower Debt to Income ratio (DTI), which helps out when qualifying for a mortgage rate and loan option program.
The next point works hand and hand…
4. Avoid Opening Lines Of Credit
Don’t open up any new lines of credit if you are about six months from being ready to purchase a home. This could lower your credit score, which would affect your chances of qualifying for lower mortgage rates.
5. Stop Buying On Credit
Sometimes you can get a little credit happy and start buying new appliances, a car or furniture for a home, but it’s not a good idea. Buying big ticket items will affect your DTI, affecting your ability to qualify for a rate and program.
We know it’s exciting, but be patient and prepare before you buy a bunch of stuff for your future dream home.
Follow these tips to be credit ready so you could qualify for low rates to get into your dream home!
Since we know you’re thinking of buying a home, check out a few of our helpful tools on us (Who doesn’t love FREE?!):
- The Ultimate House Hunt Checklist (to help you & your real estate agent find your dream home)
- Home Loan Rules – A List Of Do’s & Don’ts (things you should do and don’t do when you’re buying a home)
If you’re ready to buy a home or want to ask us any questions, speak with a Home Loan Advisor today!
Was this article helpful?
The NJ Real Estate Show, a weekly radio show hosted by real estate veteran Tim Waller, sat down with Get A R...Buying a HomeFinancial Tips