Planning to buy a house? Polish you credit score first

Thursday, February 14th, 2013

Leaving a bad credit score in bloom can be disastrous later, when the time comes to purchase a home. It is important for prospective home buyers to slim down their credit debt.

The loans practice shows that banks are still cautious about making mortgage loans. So what do you need to become the ideal loan candidate? Here is some advice to polish up your credit before plunging into the housing market:

1. Avoid buying a car

Before starting the house hunting process, do not take any additional debt like credit cards, home equity lines of credit and mortgages, and car loans. Otherwise you will increase your debt-to-income ratio, which means a lower FICO score and a higher credit risk of doing a business with you for lenders. Save large purchases like cars until after you get approved for a mortgage.

2. Don’t close credit cards

When you close all your unused cards and leave only one with a large balance on it, you are also increasing the percentage of your available credit card balance that you use. FICO is going to think you’re maxing out your credit cards and will lower your credit score. Leave the unused cards open, even after you are approved for a mortgage.

3. Don’t check your credit too often

Every time you apply for a loan or credit card, the creditor or bank will pull a hard inquiry, which will count against you on your credit history by being recorded in your credit report. A record of all hard inquiries will remain on your credit report for one to two years. And if you’re getting rejected over and over again, it shows you to be a bit irresponsible and hits your credit score as well.

If you want to find out what your credit report is, just make your own request for your credit report, this will count as a soft inquiry and won’t affect your credit score.

4. Don’t transfer all your debt to one card

If you are going to transfer all your credit card debt to one card with a great interest rate on it, think twice before you do it. Though that interest rate is tempting, don’t put a high balance on that card while cleaning your other accounts. If you have a new account fully maxed out and others that are empty, you are not the person the banks or lenders want to lend. You are too risky for them.

5. Don’t max out credit cards

Use only 30% of your credit limit on each card. If you constantly max out the cards, your creditworthiness will drop down. Call your creditor and ask to increase your credit limits. Increasing your credit limit will lower your credit use percentage.

6. Use your cards

Unused credit cards don’t help you too. Building credit history is not a matter of simply having a credit card, it’s a matter of using credit wisely. Just having a credit card somewhere in your pocket does nothing to establish credit. Use the card – make occasional purchases with your credit card to keep the account active.

7. Don’t be late with payments

One of the worst things you can do is to be late on a credit. No matter what your debts are credit cards, car payments or a current mortgage, it is vitally important to pay on time, even if it’s just the minimum payment.

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