First Time Home Buyer? Tips to Improve Your Credit Score

image by realtor.com

Looking to buy your first home, but your credit score is pretty low? This realtor.com article gives some tips on how to get your credit score up, so you can put an offer on your first home.

If you are in the market to buy your first home, that means you’ll also be in the market to get your first mortgage. To qualify for a mortgage, you’ll have to improve your credit score. A credit score is also called a FICO score, which is a simplified calculation of your history of paying back debts and making regular payments on loans. Lenders want to know that you’ll pay them back in a timely manner and a credit score is a good estimate of calculating those odds.

Go ahead and pull your credit report. There are three major U.S. credit bureaus (Experian, Equifax, and TransUnion), and each releases its own credit scores and reports (a more detailed history that’s used to determine your score). There is a small fee to get your credit score or you can get a report that you can review. Pay close attention to the “adverse accounts” section that details late payments and other slip-ups.

Next, assess where you stand. The better your credit history, the higher your score. The Federal Housing Administration requires a minimum credit score of 580 to permit a 3.5% down payment, and major lenders often require at least a 620 score.

Here are 5 tips on improving your credit score:

1. Improve your credit score with error disputes. If you spot any mistakes in your report, start by sending a dispute letter to the bureau, providing as much documentation as possible, per FTC guidelines. You will also need to contact the organization that provided the bad intel, such as a bank or medical provider, and ask it to update the info with the bureau.

2. Erase one-time mistakes. Most people have made a late payment or two. Call the company that registered the late payment and ask that it be removed from your record.

3. Increase your limits. Or course, it’s best to pay off your credit card each month. But many people cannot do that. Instead, ask your credit card companies to increase your credit limit. This improves your debt-to-credit ratio, which compares how much you owe to how much you can borrow.

4. Pay on time. Enough said.

5. Give yourself time. Unfortunately, negative items (such as late payments) can stay on your record for up to 7 years. But changing your habits to GOOD habits can make a huge difference in the “payment history” section, which accounts for 35% of your score.