Tips for Increasing Your Credit Score Before You Buy a Home

A common step for many prospective homeowners is to boost their credit score so they can qualify for a home loan. Many people wonder what credit score they need to buy a home in North Carolina. And the answer is – it varies by lender and type of loan. The general principle is that the higher your credit score, the better interest rate you’ll receive because you look less risky to the lender. However, there are many other factors that go into getting a mortgage or getting pre-qualified for a mortgage. Following these tips can help increase your credit score and make you more qualified to buy a house.

What Should Your Credit Score Be to Buy a House?

Depending on the type of mortgage and lender, the minimum credit score needed to buy a house in North Carolina can differ. If you are going to use a government organization to back your mortgage, like an FHA loan, the Federal Housing Administration requires a minimum credit score of 500, according to the 2017 guidelines. If you’re a veteran or active military and interested in a VA loan, the Veterans Administration doesn’t have a minimum credit score requirement. For those not pursuing a government-sponsored mortgage, you’ll want to get your credit score above 700 to get a better home loan rate. The minimum credit score to buy a house is anything above 500.

How to Increase Your Credit Score

If you want to increase your credit score so you qualify for a lower interest rate on a mortgage, start by getting a free copy of your credit report at annualcreditreport.com to monitor activity on your account and ensure the information is correct. Keep in mind that you’ll need to pay extra or use a different service to get your actual credit score. Your credit score is determined by several factors, including your payment history, total amount owed, length of time you’ve had credit, the different types of credit you’ve used and what’s considered new credit. Therefore, to improve your credit score to buy a house, you’ll want to create a plan of attack to improve as many of those categories as possible.

Fix Errors on Your Credit Report

One of the easiest ways to improve your credit score is to fix errors. A survey by the Federal Trade Commission found that 25% of consumers found errors on their credit reports that may have negatively affected their scores, and four out of five people who disputed errors saw some type of modification to their credit report. Use these tips from the FTC to dispute any errors you may find on your credit report.

Always Pay Your Bills on Time

One of the most important factors in credit worthiness is your ability to pay your bills on time. Use online banking through Piedmont Advantage Credit Union to set up a recurring payment for monthly bills that never change to make sure they’re paid on time. If you’re past-due on any bills, make good on those quickly. If you’re having a tough time paying your debt, reach out to your lenders to discuss a different payment arrangement, or negotiate with them to not report all your late payments to the credit bureaus.

Pay Down Your Debt

It may be tempting to try to keep up with the Kardashians, but if you want to buy a house, keep your debt low. Keeping a lower debt-to-credit ratio can help improve your credit score. Lenders want to see that you’re living within your means before they allow you to take on more debt. Reducing your debt also frees up more of your income, which helps improve your debt-to-income ratio, a criterion lenders look at before extending new credit. Crunch the numbers with our debt consolidation calculator.

Request More Credit

Another way to help improve your debt-to-credit ratio is to ask your credit card companies to increase your credit limit, if that’s an option. This will give you more available credit and help bring that ratio down, which can help increase your overall credit score.

Don’t Close Old Accounts

It may seem logical to close accounts with a zero balance, but old accounts provide a credit history, so it’s wise to keep them open. This also rings true if you are recently married or have had another major life event that would trigger you to close accounts.

Keep New Credit to a Minimum but Diversify Your Credit Types

Avoid applying for new credit cards before you buy a house. This can signal to lenders that you need credit and may be in a difficult spot financially. However, if you don’t have a mix of different types of credit, you may want to start by adding an installment loan, such as an auto loan or a small personal loan, to show lenders you’re creditworthy and can repay a loan on time.

Improving your credit score can take time, but it’s well worth the effort and planning when you qualify for a mortgage and get a lower interest rate on your home loan. Contact us at PACU with any questions!

Piedmont Advantage Credit Union in North Carolina offers valuable banking solutions including checking accountssavings accountsmortgagesauto loansCDsIRAs and more. Bank online, with our mobile app, or visit one of our conveniently located branches in Winston-SalemEdenMooresvilleCharlotteGreensboroWilmington and Kenansville, NC.

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