The home buying process begins long before you start looking at new home listings online. One of the first steps in the home buying process is getting a handle on your finances and understanding your credit. Here are our top five things to do to improve your credit score before building a new home.
1. Know what’s on your credit report.
If you haven’t looked in the last year, you could be missing something that could be hurting your credit score. Every year, you can get your credit report, for free, from TransUnion, Equifax, and Experian by going to annualcreditreport.com. While this doesn’t provide you with your credit score, it does show you what the lenders see. You can then Identify and fix any errors.
2. Fix any errors that show up.
Once you’ve reviewed your credit report thoroughly, you need to start fixing any errors. On each of the credit bureau websites, there are step-by-step instructions on how to dispute errors, and your credit report will have instructions as well. When contacting the credit bureaus, keep detailed notes on what you submit to them and copies of any documents.
3. Always be on time.
It may seem like common sense, but if you’re looking to increase your credit score, pay your bills on time every month and don’t miss a payment. Paying more than the minimum balance, even if it’s just a little more, looks good to the lenders. It also helps you pay your bills off faster.
4. Pay off your credit cards, but don’t close them.
Paying off your credit cards is a great way to lower your debt-to-income (DTI) ratio. Every lender has different standards for DTI ratios. According to the Consumer Financial Protection Bureau, a DTI of 43% is, in many cases, the highest ratio a borrower can have and still qualify for a mortgage.
5. Be smart with new and old lines of credit.
If you are under contract to buy a new home, opening up new lines of credit, or making any significant charges on your current credit card can negatively alter your DTI–this makes you look risky to lenders. If you are building a new home, it can be a four to six-month process, so be sure to plan for it. It is recommended to wait until after closing to buy a new car, new furniture, or book that all-inclusive vacation. If you have anything that comes up before closing, consult your lender. While not opening new lines of credit is essential, keeping old lines of credit open is advised. These old lines of credit show your credit history, and closing them could change your DTI for the worse.
Do you have a suggestion for our list or something you think is more important? If so, please leave them in the comment section below, we would love to hear them or feel free to start a conversation over on Facebook.
We hope this helped answer some of your questions about improving your credit score.
If your credit is in check and your looking for a new construction home in West Michigan, Macatawa Homes is a leading home builder, specializing in energy-efficient and stylish designs to help you save money all year long. You’ll also enjoy the peace of mind of new home construction and the latest innovations in building practices. Shoot us an email or schedule an appointment so we can sit down and get your dream home started.