Before lenders settle on the terms of your home loan, there are two crucial elements that they must ascertain. The first one is your ability to make timely payments and your commitment to repay the loan. These two parameters employ different approaches.

Your ability to repay is determined using the income debt ratio. However, willingness and commitment will depend on your credit score. The most popular credit scores are the FICO scores, which range from 350 to 850.

Regardless of your income, the repayment is all that matters in the calculation of credit scores. Past payments and length of credit history are other factors that will play a crucial role in the determination of your score.

Keep reading for the best ways to improve your credit score.

Timely Payment of Bills

Timely and full payment of bills has to be a priority if you want to improve your credit score. Since the FICO score is commonly used, your payment history will comprise 35% of your score.

Settling your bills on time should be no point of discussion. If you can, automate everything to be sure that the payments are made on time. If you ever are late with these payments, be sure to bring them current as quickly as possible to mitigate their effects on your score.

Keep Your Old Credit Account

Every now and then, you will be tempted to close your first credit account simply because you are opening a new one. This isn’t a good idea.

The length of your credit history constitutes up to 15% of your credit score. Longer credit histories are usually considered to be less risky than the shorter ones. This is based on the fact that there is adequate data that will be used to determine the history of payment.

However, be sure that the credit cards you keep open do not cost you any money. As long as they are open, they will go a long way in elevating your credit utilization ratio. At times, having fewer accounts may adversely affect your credit scores. Having available, unused credit limits shows lenders you can manage your finances responsibly.

Dispute Any Misleading Information

It’s a good idea to check your credit report once a year. In rare instances, you may notice some misleading information in your report. In such cases, confront the relevant authorities and have them make corrections where needed. However, these changes cannot be made when you are going for the mortgage. You’re allowed one credit report check yearly without penalty, so use it to your advantage.

Do Not Apply for New Cards

Applying for new credit cards while you’re trying to buy a home isn’t a good idea. Each application brings about a hard inquiry on your report. Having multiple applications for new cards means that there will be several hard inquires which will adversely affect your credit score, not to mention increase your revolving credit availability. Lenders will consider this when you apply for a mortgage. While having unused credit available can show lenders you are financially responsible, having too much available can have the opposite effect.

So how long does it take to rebuild a low credit score? While it takes just a single default to earn yourself a bad rating, it takes you years to build it. If you find yourself in such instances, the best you can do is make timely payments when needed and remain patient as the credit score builds over time.

People often feel like they’re not in a financial position to buy a home, but that might not be true. If you have a good credit history and a steady job, you may be closer to owning a home than you realize. Stop throwing money away on rent and talk to one of our mortgage specialists today!

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