Your credit score will directly influence your mortgage rate. Poor credit could cost you a lot of money in the long run. If your credit is especially low, you might be unable to secure additional lending at all.
Focusing on improving your credit score before starting the home buying process may improve your overall experience. With the right strategies, you can boost your score and your image with lenders.
Lower and pay off debts
Delinquent debts can take a toll on your credit score. Other factors related to the payment of debts can also impact your score. Some examples include the following:
- Having a lot of outstanding debts
- Having a high credit utilization ratio
- Making late payments
Every time you make payments on time, you build a consistent track record that helps your credit score. Even if you are not in a position to pay off all of your debts, do your best to pay off as many as you can before you seek lending for a mortgage. You might also consider negotiating with some lenders to improve the payment plan of some outstanding debts so you can pay them off sooner.
Avoid new debt
Another great way to build your credit score is to avoid any new debt. According to CNBC, unexplained or suspicious financial activity is often seen as a red flag to lenders. Purchasing a home is a significant investment. Refrain from other big-ticket purchases and maintain a stable financial lifestyle while you wait for approval from your mortgage lender.
Some other things you can do include monitoring your credit score for mistakes, keeping paid-off accounts open until your mortgage negotiations are complete and knowing how much you can reasonably borrow. Building a great credit score takes time. Preparing for your home purchase can give you a better chance at a satisfactory mortgage rate.