Hi, I’m Warren Oberholser. I’m a realtor in the East Bay Tri-Valley area in Northern California. My goal is to help both buyers and sellers get maximum results for one of their biggest investments, their home.
You’re ready to purchase a home? How’s your credit? Not so good, don’t worry.
In this BLOG, I’m going to give you three crucial steps you can do to improve your credit.
Probably the least fun time of purchasing a home are the first steps. Shopping for a lender, applying for a mortgage, and waiting to find out how much you can afford to spend on that new house is tedious, especially when all you want to do is look at homes for sale. Unfortunately, this is a task that must be handled up front before you start looking at homes on the market. If your credit is ready before taking the step, you’ll be far more successful in obtaining a mortgage with an attractive rate, which will save you money on your home payment.
Take the following three steps as soon as you decide you want to purchase a home.
Number One: Make Bill Payments on Time
As you can imagine, one of the worst things you can do is to pay bills late or not pay them at all. Both will impact your credit score and, thus, your ability to obtain a mortgage. Your FICO score considers late payments using three general criteria, how recent the late payments are, how severe the late payments are, and how frequently the late payments occur. caution the experts at myfico.com.
Don’t allow any bills to be sent to a collection agency, it is considered a major issue with your credit score and will most likely create a severe negative impact. If unexpected financial emergencies come up, contact your creditor, let them know your situation, and ask if there’s any way you can avoid a late payment on your credit. Your payment history accounts for 35% of your FICO score So be diligent in paying your bills.
Number two: Don’t Apply for New Credit
Keep all of your credit card balances low and pay them before they’re due. If you can, make additional payments to bring down your balance. Avoid applying for new credit cards. Why? Lenders are wary of borrowers who take on additional debt and if you apply for credit the signal that you’re sending is that you’re willing to rack up more debt.
While FICO only considers new credit applications for the past 12 months, they account for 10% of your credit score. New accounts also have an impact on your length of credit history. FICO uses your oldest account and the average of all your accounts. Opening a new account decreases the average age. The exception to this rule is for the consumer with a spotty credit record. “If you can prove to lenders that you can pay your bills on time, this will help increase your score in the long run,” claim the experts. By the way, credit inquiries remain on your credit score for two years.
Number three: Lower Your Debt to Income Ratio (DTI)
When your mortgage application gets to the underwriter they will examine your debt to income ratio.
Simply, this is a calculation of your income and debt that tells the underwriter how much money comes in and how much goes out every month. Borrowers with a high DTI (more than 43%) present a bigger risk to lenders.
Calculate yours with these tips from the Consumer Financial Protection Bureau. To lower your DTI, either decrease your debt, raise your income or do both. Find some additional tips on how to lower your DTI at credit.com.
I hope you enjoyed this article. I would like more information on credit and the loan process, please reach out to Brian Lebars from Vintage Home loan in Pleasanton.
Please let me know if you have any questions. Warren
Hello…I work with both buyers and sellers in the Tri-Valley area of Northern California. The Tri-Valley is comprised of 6 cities: Pleasanton, Livermore, Dublin, San Ramon, Danville, and Alamo. To better understand what each city has to offer, I have created a Pros and Cons video and BLOG for each – (Pros & Cons for Pleasanton, Pros & Cons for Livermore, Pros & Cons for Dublin, Pros & Cons for San Ramon, Pros & Cons for Danville and Pros & Cons for Alamo). If you are thinking about purchasing or selling a home, please reach out to me by text, phone, or email. If it is convenient, I can schedule a Zoom chat so we can discuss your home goals. Wishing you all the best on your home journey. Cheers!
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