It’s never too early in your Bend, Oregon, home-buying journey to set yourself up for success regarding the best possible rate on a mortgage loan. This is especially true for first-time buyers, who before considering buying a home may never have had to consider the impact of their credit score on a major purchase. A jump in your credit score can translate to a better loan, a faster process, and can save thousands of dollars to boot. The following are essential tips from the team at Bend Relo for how to give your credit score a game-changing boost right now:
Know the numbers
First off, what’s a good credit score, and why does it matter? Your FICO score is a primary indicator for a mortgage lender, how your lender assesses your ability to pay debt. Scores range from 300 to 850, with anything at or above 740 considered excellent. A score above 670 is considered good. Below that starts to look weak.
Check your score
Transunion, Equifax and Experian will issue a free report every 12 months. (A variety of organizations, including NerdWallet, will provide a “soft inquiry,” which won’t negatively affect your score. A “hard pull,” by contrast, is an inquiry made by someone else to determine if they are going to extend you credit, and it can cost you points.) Once you’ve got your score, you can start to understand how it breaks down:
- Payment history accounts for 35% of your score
- Utilization accounts for 30%—this is the amount you owe compared to the amount of credit that’s been extended to you
- Length of credit history accounts for 15%
- Types of credit you carry accounts for 10%—this covers revolving credit, like a credit card, and installment credit, like a car loan
- New credit, or recently opened accounts, factor in at 10%
Other considerations besides your credit score help a lender determine what kind of mortgage loan you qualify for, such as debt-to-income ratio (lower than 43% is optimal), the amount of savings you have, how big a down payment you can put down, and employment history. In traditional markets, your longevity with an employer, or the amount of time you’ve worked in the same industry, has been a consideration. Here in Bend, Oregon, where entrepreneurism is a driving economic force, how you’ve managed debt is all the more important. In other words, the higher your credit score, the better the rate on your mortgage loan.
Reduce credit card balances
Remember up a little bit when we distinguished between revolving and installment credit? If you’re going to carry debt, installment debt is the way to go. Get those credit card balances down. Apply your tax refund. A significant and fast reduction in credit card debt is like a Botox injection for your credit score, and instant lift. Budget for a monthly payment as much over the minimum payment as you can manage. Also, ask for a higher limit, which resets the ratio of debt-to-available credit in your favor. Another option? Transform credit card debt to installment debt by transferring balances to a personal loan.
Become an authorized user on an account of someone with rock star credit
Yep, get a little help from your friends, or relatives. You don’t have to actually use the account, you just have to be associated with it—let the good credit sunshine of another brighten your path to a great rate on a home loan.
Fix credit report errors
Go over your credit report, and if you spot any mistakes, contact the credit bureau to correct them. A “rapid re-scorer” will do the job fast, but it‘s a process available only through a mortgage lender. You’ll want to erase errors long before you’re actually seeking a home loan.
Long-term strategies and overall best practices for maximizing your credit score include paying your bills on time and not maxing out your credit cards. If possible, borrow only so much as you can pay back each month. Less obvious advice is to avoid closing accounts prior to applying for a home loan and be sure to use the accounts you do have once in a while, even for a small purchase, as inactive accounts are a negative factor in credit score assessment. Best all-around tip? Act early. Erasing errors and paying down debt quickly can raise your credit score in a matter of days. It’ll take 12 months or more for your score to reflect sterling new habits such as prudent spending and timely payments.
Start today to take your credit score up a notch, and when the time comes to apply for a mortgage loan for a new home in Central Oregon, you’ll be golden for a great rate.
how Can we help you?
Interested in moving cross-country?
Already live in the area and looking for a new place?
We've got you covered either way! Let's chat.