How To Help Your Credit Score To Buy a House
If you’re shopping for a home in this red hot market, you’re going to need to be as competitive as possible. You don’t really need a perfect credit score to buy a house, but it helps you to make the best offer possible.
To make the best offer, you need access to the best interest rates.
How do you get the best interest rates? A great credit score.
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Knowing your numbers
Credit scores range from 300 to 850.
You want to aim for being in the “good” category or better. A good credit score to buy a house typically falls around 670 and above.
If you’re already in a good position, shoot for 800+ to increase your buying power.
The median score of homebuyers at the end of 2020 was 786. If you’re not quite there or don’t even know where you stand, don’t worry! Here are some steps you can take to get you on track.
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1) Check your credit report
How can you know you’re improving your credit score without knowing where you’re at?
You get 1 free credit report per year through annualcreditreport.com.
Use this ASAP to see if there are any mistakes on there or if you’ve missed a payment or bill that you forgot about.
2) Pay bills on time
This one sounds simple and is generally considered common sense. But life tends to get in the way, and sometimes we forget to pay.
Obviously, one way to avoid this is to set up auto-pay on all of your bills. If you’re not a fan of making auto-payments, set reminders in your calendar.
Here’s another helpful tip! There are actually two payment dates you need to be aware of:
- Due Date: This is the date you need to pay your monthly credit card balance in full to avoid interest fees.
- Closing Date: This is arguably more important if you want to raise your credit score to buy a house. Paying before your credit card closing date is actually what increases your credit score.
For example: Let’s say you have a Chase credit card. The balance due date is on the 30th of every month, so you set up auto-payments for that day to avoid interest.
However, if your closing date is on the 28th of every month, you’re not really going to see your credit increase as much as it should because you’re paying after the closing date period.
You can find your credit card closing dates on your monthly statements.
3) Lower your credit limit to usage ratio
This one is important.
You want to only be using 20-30% of y0ur available credit limit at any given time.
For example, if you have a total credit limit of $10,000, you only want to be using $2,000-$3,000 of that at any given time.
4) Ride shotgun
Becoming an authorized user on someone else’s credit card (that has good credit) can help your credit score.
And finally, try not to make any big-ticket purchases if you’re looking to buy a home soon (i.e a car). This can reflect poorly on your credit and make lenders pause.
In this market, you want to make sure you have all your financial ducks in a row. Otherwise, you could be making your house hunting journey harder than it needs to be.
