As a trusted mortgage professional, I encourage home buyers to get pre-qualified and to review their credit months before they start looking for a home. But don’t be fooled by simply checking the credit score that you get for free through your credit card company or some other service! These credit scores you get for free are NOT the same scores the mortgage industry will use to price your mortgage rate and to underwrite your loan. These credit scores cost money and must be obtained through your trusted mortgage professional.
Once you’ve obtained your scores, are they adequate to get you the mortgage rate you’re looking for? After all, all lenders must utilize the same “Risk-Based Pricing Adjustments” mandated by Fannie Mae and Freddie Mac. And depending on your score, even a 10 point increase can boost you into the next rate category which would result in a slightly lower mortgage rate!
So what are the fastest and easiest ways to boost your credit score? I’ve listed the Top Five below:
- #5 – Pay Down Your Balances.
Carrying large balances on your credit cards from month to month will drive down your credit scores, especially if the balances approach your credit limits. If at all possible, keep your balances to 10% or less of the available limit on your card. Better yet, pay off your balances every month.
- #4 – Do NOT Close Old Credit Card Accounts. In Fact, Open One or Two New Ones!
Contrary to popular belief, closing old accounts will NOT improve your credit scores. In fact, they will lower your scores!
One of the factors utilized in calculating credit scores is the ratio of utilized revolving credit to total credit available. The lower the ratio of utilized credit, the better your score. Therefore, by closing unused credit cards, you are simply eliminating available credit and driving up the percentage of credit being utilized! Opening an additional card adds to your available credit and also reduces your ratio of utilized credit.
SIDEBAR: Opening one or two accounts is fine. But don’t overdo it! And please don’t open additional accounts during your mortgage process.
- #3 -Become an Authorized User.
Don’t have a lot of credit? Is your credit new? Having a difficult time qualifying for more? Becoming an authorized user on a parents’ or relatives’ card could help.
However, make sure the history on this card is pristine, balances are not carried, and that the age of this account is significantly older than the years of your credit history.
- #2 – Pay Your Bills On Time!
This advice is so simple; yet so many people accidentally miss payment due dates, overlook payments, or simply act irresponsibly. If you’re not going to pay your bills on time, then none of these other tips will make a dent. And if you’re forgetful or unorganized, set up reminders on your phone. Or ask the creditor to send you emailed or text reminders. Or set up auto-payments.
- #1 – The Number One thing you can do to boost your credit score is often the most overlooked. Want to know what it is? Send me an email and I’ll send you the report.
Warren Goldberg is President of Mortgage Wealth Advisors, a Certified Mortgage Planning Specialist®, and a published author. His interviews include Blog-Talk Radio, Newsday, The Daily News, Anton Press, and the Long Island Herald. Since 1992, he’s been sharing his financial knowledge and wealth-building strategies, including how to properly use your mortgage as a financial tool. His clients regularly express their trust and appreciation by recommending friends and family call when in need of mortgage, real estate, and financial guidance.