Improving your credit is an important step in preparing to buy your first home. Here are some practical tips to help boost your credit score:
- Check Your Credit Report
Start by reviewing your credit report for any errors. You’re entitled to a free copy from each of the three major credit bureaus (Experian, TransUnion, and Equifax) once a year. Look for mistakes like incorrect balances or accounts that aren’t yours and dispute them if needed.
- Pay Bills on Time
One of the biggest factors in your credit score is your payment history. Consistently paying your bills on time, whether it’s credit cards, loans, or utilities, shows lenders that you’re reliable. Set reminders or automatic payments to avoid missing any due dates.
- Reduce Credit Card Balances
Your credit utilization ratio (how much credit you use compared to your credit limit) affects your score. Aim to keep your balances low—ideally below 30% of your credit limit on each card. Paying down credit card debt can give your score a quick boost.
- Avoid Opening New Accounts
Each time you apply for new credit, a hard inquiry is added to your credit report, which can temporarily lower your score. Avoid opening new credit cards or loans while you’re trying to improve your score, especially before applying for a mortgage.
- Keep Old Accounts Open
The length of your credit history also matters. Closing old accounts can shorten your credit history, which may hurt your score. If you have older accounts, try to keep them open and in good standing to maintain a longer credit history.
- Pay Off Debt Strategically
If you have multiple debts, focus on paying off the ones with the highest interest rates first, while making minimum payments on the others. Reducing debt overall will improve your credit score and your debt-to-income ratio, which lenders look at when approving a mortgage.
- Limit Large Purchases
During the home-buying process, it’s important to avoid taking on new debt or making big purchases (like a new car or expensive furniture). These can increase your debt and lower your credit score just when you’re preparing for a mortgage application.
- Consider Credit-Builder Loans
If you’re just starting out with little or no credit history, some banks or credit unions offer credit-builder loans. These are small loans designed to help build your credit over time by making regular payments.
- Use Credit Wisely
Having a good mix of credit types (credit cards, auto loans, student loans) can help improve your score. But be sure to manage each responsibly, paying on time and keeping balances low.
- Monitor Your Credit Regularly
Keep an eye on your credit to track your progress. Many services offer free credit score monitoring, which can alert you to any changes or potential issues.
Improving your credit takes time, so it’s a good idea to start working on it well before you plan to buy a home. A higher credit score can help you qualify for better mortgage rates, potentially saving you thousands of dollars over the life of your loan.