If you’re planning to apply for a home loan, you’ll first want to address your credit score. Photo: Howard Bloom – Intero Real Estate (2016)

If you’re planning to apply for a home loan, you’ll first want to address your credit score. Photo: Howard Bloom – Intero Real Estate (2016)

If you’re planning to purchase a home in the near future, you’ll need to address your credit score beforehand. A credit score is a three-digit number ranging from 350 to 850 (with 850 being the best) that lenders use to evaluate an individual’s capacity to repay a loan. Consequently, your credit score will play a central role in determining the kind of home loan and interest rate you get approved for—and whether you can get approved at all. That’s why it’s important to be proactive about maximizing your credit score long before you apply for a home loan. Here are some tips on how to do so:

Find out your credit score. Many people assume they have good credit, only to get a rude awakening when their loan agent runs the numbers. To avoid this scenario, determine your credit score well in advance so you can make any needed adjustments. Keep in mind that accuracy is critical with a credit report, so rather than getting a report from an online agency, a better option is to meet with a mortgage professional. Within minutes, you’ll get a full report from all three of the major credit agencies, including your FICO score, which you can’t get by going though just one agency.

Take care of minor issues. One of the reasons it’s crucial to get a thorough credit report is it can reveal minor financial issues you didn’t know you had, such as small collections, which may not show up on a less comprehensive report. If you find these kinds of issues on your credit report, make it a priority to address them. Doing so can increase your credit score by as much as 50 or 100 points, which is no small margin when qualifying for a home loan.

Avoid opening new accounts. Another tip for maximizing your credit score is to avoid taking out any new credit card loans within eight months of your estimated home purchase date. Whereas maintaining your old credit cards will help keep your credit score high, opening new accounts will only decrease it. In other words, wait until after you’ve secured your home loan to purchase that new car.

Pay down the debt. If you have existing credit card debt, do your best to pay it down to 50 percent or less of that card’s credit limit prior to seeing a mortgage lender. This will substantially increase your credit score and help you get the best possible loan and interest rate.

To find a Diamond Certified mortgage professional in your area, visit diamondcertified.org.

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