How Homebuyers Can Improve Their Credit Scores
Real estate in Charleston has been booming this year, and in order to get loans quickly, potential homebuyers must keep their finances and credit in line.
Below, you will find 10 general tips that can help you improve your credit score, and obtain a home loan.
1. Always pay on time No lender enjoys lending money to those who have a repeated record of missing payments. This shows a lack of discipline and poor financial management – which can make a bad impression on paper. Intentional or not, if you have a frequent history of missing your equated monthly installment (EMI), you will have a lower FICO score.
2. Keep your credit owed within limits A good ratio is keeping your unsecured credit outstanding above 50% of your annual salary. Try to keep your credit card balances within half of the allowed limit.
3. Always pay your dues on time, in full This is the most important tip. On-time payments can improve your credit score tremendously. It carries almost a 40 percent weight on your score. Try not to miss your due dates for monthly payments. Nobody likes a person who cannot keep their word – especially with banks. So pay in full and on time.
4. Use two credit cards if you are a definite credit card spender This is good and bad advice at the same time. FICO does not consider spending money on two credit cards as one, however, if you do have two credit cards, you can manage your usage percentage in control.
For example, if you have a credit card limit of $20,000 and you charge %15,000 on it –you have used 75% of your credit limit.
If you were to split that amount in two, and spend $7,500 each, then the percentage of usage will be around 37% - helping you with FICO.
5. Maintain a good mix of good and bad loans – AKA, a healthy credit mix Home loans and business loans are considered good loans. Credit cards and personal loans are considered bad loans.
This is why investing in a home loan can be a good decision. You will have a better credit mix and be building an asset.
6. Pay high-interest loans and small loans first It is wise to pay your home loans down over longer timespans. Pay off your personal loans, credit cards, and private loans first. They tend to have a higher interest rate and no asset creation.
Home loans on the other hand have lower interest rates, and also build an asset. This is an often underutilized, but logical tips to improve your credit score.
7. Close your unwanted savings account Many people tend to abandon their savings account without closing them. Many savings accounts also have a Minimum Average Balance – which if you dip below will begin to affect your credit score.
8. Check your credit reports regularly Credit reports are very inexpensive. You can obtain them from the official FICO site. Simply pay online and check your credit score at least yearly. If you have any discrepancies, you can seek clarification on any mistake and have it dealt with.
9. Monitor your co-signed joint accounts properly Be careful with dealing with anyone outside of your close family on joint accounts. You should carefully monitor your statements to make sure everything is in order.
10. Negotiate if you cannot pay on time People often know when they cannot pay a bill in advance, yet they take no action. If you know you are unable to pay on time, negotiate with your bank. They can be willing to extend loan periods and reduce the EMI if they see an honest customer.
By Johnson Fedrick
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