We’re hoping to buy our first house later this year, and we’re wondering what we should be doing over the next few months to improve our credit.
Paying your bills on time has the biggest impact, so be particularly careful not to miss any deadlines before you apply for the mortgage. The following strategies aren’t as obvious but can also make a big difference.
Six months before you apply
» Don’t open or even apply for any credit cards. Lenders look at recent “credit inquiries,” which indicate that you might be about to take out a lot of new debt, making it tough to pay your bills on time.
» Don’t close any credit cards. Almost 30 percent of your FICO score, the one most lenders rely on, is based on how much of your available credit you’ve used (called your credit utilization ratio).
» Check your credit reports for errors. You can get free copies from each of the three credit bureaus every 12 months at AnnualCreditReport.com. If you’ve already received your free reports for the year, order them directly from Experian.com, TransUnion.com and Equifax.com.
Two months before you apply
» Begin paying down card balances. Low balances don’t always appear on your credit report right away, says John Ulzheimer, president of consumer education at SmartCredit.com.
» If you have to add new charges, keep them to 10 percent or less of your available credit. “A low ratio is worth almost as much as paying your bills on time,” says Ulzheimer.
» Once you do start shopping for a mortgage, “rate shop within a focused period of time,” says Anthony Sprauve, of FICO. The FICO score recognizes that you may be shopping around for rates. As a result, all inquiries made within a limited time count as one inquiry. “Thirty days is a safe bet,” says Sprauve.
» Don’t stop following these strategies until you close on the house. “You’re not out of the woods until you have the keys in your hand,” says Ulzheimer.
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