Building Your Credit: Strategies For Success
As a mortgage loan expert with over 30 years in the industry, I know firsthand how important your credit score is to the mortgage process. Whether you’re aiming to buy your first house or looking to refinance, I’ll explain the key strategies for building credit that have helped my clients achieve their goals.
Understanding Your Credit Score
Before diving into strategies for building credit, it’s important to understand that your credit is a number used by lenders to gauge risk. A higher score can mean better loan terms and lower interest rates, while a lower score could get in the way of your future. If you’ve had poor payment history or other hits to your credit, these tips will help you get back in the green.
Strategies for Building Credit
Check Your Credit Report Regularly
Regularly reviewing your credit report is a foundational step in strategies for building credit. You can obtain a free copy of your credit report from the major credit bureaus, like Experian, Equifax, or TransUnion. Look for any inaccuracies or fraudulent activity and dispute them.
Pay Your Bills on Time
Payment history makes up 35% of your FICO credit score. Develop a budget and set reminders to make sure you don’t miss payments.
Manage Your Credit Utilization Ratio
Your credit utilization ratio is the percentage of your total credit limit that you’re using. A lower ratio indicates that you’re not overly reliant on credit and is favorable to your score. Aim to keep your credit utilization below 30% of your total available credit.
Build a Diverse Credit Portfolio
Having a mix of credit types, such as credit cards, auto loans, and installment loans, can benefit your credit score. Lenders like to see that you can manage various types of credit responsibly.
Use a Credit Card Wisely
Wondering how to build credit using a credit card? Start by making small purchases and paying off the balance in full each month. Avoid carrying a balance and accruing interest in order to demonstrate your ability to pay responsibly.
Become an Authorized User
If a family member or friend has a good credit history, ask if they’d add you as an authorized user on their credit card. This can help boost your credit score by leveraging their payment history- so make sure they have a history of paying on time!
Set Up Autopay
To avoid missing payments and incurring late fees, set up automatic payments for your bills. Remember, payment history makes up a large chunk of your credit score!
What NOT To Do
In addition to building your credit score, there are a few common mistakes you should try to avoid when applying for a mortgage.
Once you’re on the path to homeownership, it’s important to keep your credit usage and score more or less consistent. Try not to move your money around too much, do not deposit huge amounts of cash, and don’t take out a cash advance on any of your credit cards. Further, you should disclose all sources of money that you plan to use to buy your home to your loan officer.
A common mistake I see is that clients show up to a closing with money they’ve borrowed from friends or family, or felt comfortable making big purchases before their home closes. Take it from my 30 years of experience: don’t make these mistakes! Accruing new debt and charging up credit cards can damage your credit score and your chances of home ownership.
If you’re reading this and thinking: “Oh no, I’m already too late!” –Don’t worry. My team has experience helping clients in all sorts of complicated circumstances. If that sounds like you, send me a message.
Team Jerry Pounds is here to help!
Improving your credit score doesn’t happen overnight, but with these strategies for building credit, you can make it happen! If you’ve been wondering how to build credit to buy a house, don’t hesitate to reach out. We’re here to help you get the home of your dreams at the price you deserve!
