How to Build Your Credit So You Can Buy a HouseBuying a house encompases many steps other than just touring homes and picking the one you like most. Being prepared in every aspect of the home buying process will set you up for success and one of the most important ways to prepare is ensuring you have good credit. Let’s take a look at some ways to strengthen or establish a good credit score when thinking about buying a Winter Haven FL home

Why Is Credit Score Important When Buying A Home?

For a mortgage lender, a credit score is like a rating of financial trustworthiness. It gives them an idea of how much risk they are taking by agreeing to loan you money. If your credit score is low, their risk is high and if your credit score is high their risk is low. While many lenders will still take on clients with low credit scores, they will mitigate their risk by charging higher interest rates or by requiring a higher down payment.

Mortgage lenders want to help you become a homeowner, but they must also weigh the pros and cons of each case and make a decision based on whether or not you are a trustworthy candidate to pay back the loan.

What Are Some Steps I Can Take?

The equation of credit score calculation can be a tricky one, but there are steps you can take that will help set you up to buy a Winter Haven FL home.

Apply For A Credit Card

If you don't have credit or you're trying to reestablish good credit, applying for a credit card can be one of the easiest ways to get started. While there are countless types of credit cards out there, look for one designed to help you build good credit. These cards will have low limits to start and may require certain “built in safety features” such as a security deposit to open the credit account. 

Keep Credit Inquiries As Low As Possible

While how you use your credit account is more important than how many you have, applying for several credit cards or credit accounts in a short period of time can be detrimental to your score. When you submit an application for a credit card it is represented as a “hard inquiry” on your credit report and will often lower your credit score by several points. Try taking advantage of pre-qualification forms online instead of applying for several credit cards at one time. These pre-qualification forms show as “soft inquiries” and do not affect your score. 

Pay Your Bills On Time

This should go without saying, but paying your bills on time is one of the most important factors influencing your credit score. Just one late penalty can drastically reduce your score to the tune of 100 points or more! Staying on top of your payments and keeping in good standing with your credit card company will raise your credit score and out you in a significantly better position to buy a home. 

Keep Low Balances

Another important factor in building or maintaining high credit is keeping low balances on your credit card accounts. Using less than 30% of your total available credit is ideal and will show credit responsibility and ease mortgage lenders minds. If you are using more than 30% of your total available credit, try paying your balances down below that threshold and you will be shocked at how quickly your credit score will improve.

Keep Cards Open 

Length of established credit lines is also considered when calculating your credit score. Closing an old account that you don't use could have drastically negative effects on your credit, while leaving them open and unused will help keep your credit amount high and lower your total credit used. While there may be a time when closing an unused account makes sense, be careful when considering buying a home in the near future. 

While your credit score situation is personal and unique, these steps can help everyone improve their financial standing and prepare for buying a home. Credit scores can be confusing and frustrating, but are an important piece to the mortgage puzzle. Plan ahead, follow good advice, and you can become a homeowner in no time.

Posted by Florida Realty Marketplace on
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