Everyone knows that credit is a big deciding factor in whether or not a mortgage application is approved, but many are left wondering what they need to do in order to repair it. Life circumstances can cause many individuals to have less than excellent credit, but that doesn’t mean that you’ll never be able to buy a home. Here are some ways to increase your credit rating and your chances of being approved for a mortgage.
1- Pay on time
If you do nothing else, make sure that you pay all of your obligations on time moving forward. It is paramount that every month you make your payments in a timely manner. Late payments that exceed 30 days past due are reported to the credit bureaus and have a very large negative impact on your credit score. Also, it shows a lender that you are either having some sort of financial difficulty or that you aren’t managing your finances responsibly.
2- Keep your debt to a minimum
It is wise to keep your overall debt to a minimum. Try to keep one revolving account and one installment loan that aren’t maxed out. This will show your lender that you are maintaining credit without over extending yourself.
3- Minimize your inquiries
Multiple credit inquiries affects your credit score negatively. It shows that you are continually trying to get new credit extended to you and can raise red flags. Lenders do not like to see multiple credit inquiries on a credit report. They will be concerned that you will over extended yourself with financial obligations again.
4- Resolve outstanding collections.
It is important to resolve any outstanding collections, judgments or charge offs on your credit report before applying for a mortgage. This will immediately help your credit score raise. Lenders will understand if you went through a financial struggle. They will have increased confidence to see that you’ve reconciled old debts.
5- Give it time.
Once you have settled and paid back old debts you need to give your credit time to repair itself. Your score will improve each month that passes as the time since delinquency passes. Many lenders may have requirements of the length of time since a delinquency. Additionally a mortgage lender will see that you’ve taken an appropriate amount of time to allow your financial situation improve. They will have greater trust in your ability to pay on your new mortgage.
If you have less than perfect credit understand that you can someday own a home. Just take the steps listed above to improve your credit and the trust your mortgage provider will have in you.