Today’s real estate market is thriving. Home values are increasing and the demand from home buyers is through the roof. Much of this is due to mortgage rates hovering near historic lows. Low rates are great for not only home buyers, but also homeowners who can refinance their current mortgage for a lower rate. Unfortunately, not everyone has been able to take advantage of today’s rate climate. Lenders have been incredibly selective during this favorable rate environment. Many applicants with lower credit scores have not been able to qualify for certain mortgage or refinancing options. At People’s Choice Mortgage, we think everyone deserves to own a home. With that, we think that it is never a bad time to enhance your credit score. so we have some tips for you to do just that. 

The Basics of a Credit Score

Your credit score is a number between 300 and 850 that assesses a person’s credit worthiness. There are three credit bureaus that assess your creditworthiness. These are Experian, Transunion, and Equifax. An excellent credit score is one that is in the 781 to 850 range. A very poor score is one that is between 300 and 499. Everything in between varies because credit scores are calculated through many factors. The first common factor is your debt to income ratio. The debt to income ratio is the comparison between your outstanding debt and the amount of money that you receive. The more debt you have, the lower your credit score will be. These debts can be from outstanding loans, credit cards, car leases, or other sources of debt. 

Another part of your credit score is the history you have with lenders. Every time you ask for a loan, credit card, financing application, or even something like a mortgage. The more you apply for different loans, the more your history racks up. Another part of your history is your payment history. If you are late to pay back a loan, it will get reported to all three credit bureaus. 

Tips to Improve Your Credit Score and Improve Your Chances of Qualifying for a Mortgage

Having an excellent credit score is important for increasing your chances of qualifying for a mortgage. Here are some ways that you can improve your credit score so that you can get your dream house today:

Pay Your Bills On Time 

Payment history has a large impact on your credit score, so it is important to always pay on time. Charging all of your monthly bills to a credit card could help in case you forget to pay your bills.

Keep Your Credit Utilization Low

Credit utilization is calculated through the percentage of debt you have. For example, owning one credit card and using all of the available funds on the card would put your credit utilization at 100%. This is not a great spot to be in because it tells lenders that you are very reliant on borrowing money. As a rule of thumb, you should keep your credit utilization ratio to around 30%.

Limit “Hard Inquiries” 

Hard inquiries occur when you apply for credit. This could be a credit card or a loan. The process requires the lenders to look at your credit and determine if you are worthy for the loan. If this ends up on your credit then it is a hard inquiry. Limiting these can help your credit. This is especially helpful when you are about to apply for a home. 

Consolidate Your Debts 

If your debt is spiraling out of control, debt consolidation may be a good option for you. This entails taking out one large loan to pay off all of your other debt. This could be advantageous if you get a lower monthly payment or lower interest on the loan.

Final Thoughts

Owning a home is a fundamental component of the American dream. It gives you a place to make long term memories with those you love. It is also one of the best ways to build wealth for you and future generations. There is no reason you should let your credit score get in the way of you buying a house or refinancing your current mortgage. 

If you would like to buy a house or refinance your mortgage but think your credit score might not be good enough, you should contact us at People’s Choice Mortgage, we are here to help you with every step of your credit enhancement journey. We can do a detailed report of your current credit rating and your financial situation in order to come up with a plan tailored to your needs. You would be shocked at how quickly your credit score can improve with some expert guidance and support.

Furthermore, not every lender requires perfect credit. There are many government programs from FHA loans to VA loans, to USDA loans that have very low credit score requirements. On top of that, not every lender is as restrictive as others. We work with hundreds of lenders, which gives all of our clients access to many different loan options. Whereas your credit score might not be enough for one lender, it might be fine for another lender. You will never know until you talk with our professional mortgage brokers and let us look at your situation. The bottom line is that you should not disqualify yourself from buying a home before you speak with us.