Thanks to new lending guidelines in recent years from Fannie Mae and Freddie Mac, buying a home is expected to be easier. One of the most important changes for prospective home-buyers has to do with how lenders will view minor credit blips when reviewing mortgage applications.
If you’ve had a late payment or two in the past, they’re less likely to count against you when it comes to securing financing. That doesn’t mean, however, that you’ll automatically qualify for a home loan if you have a score that’s just okay. If buying a home is in the cards for 2017, here are five things you should be doing now to give your credit a boost:
1. Take a Look at What’s in Your Report
If it’s been awhile since you checked out your credit report, now’s the time to give it a closer look. You’ll want to get copies of your report from each of the three major reporting bureaus, since the information that’s listed may vary. If you think your credit’s in pretty good shape, you can do this about two to three months before applying for a mortgage. You’ll want to give yourself six to nine months if you know there are some major negative marks you’ll need to clean up.
When you’re reviewing your reports, there are some specific things to pay attention to, starting with the kinds of credit you have. Ideally, there should be a mix of installment loans and revolving accounts, since each of them are weighted differently when it comes to how your score is calculated. If you’ve only got one or two credit cards, you might want to consider adding a small personal loan to even things out a bit. Just keep in mind that you don’t want to go crazy applying for new loans or lines of credit, since that could actually cause your credit score to go down.
The next thing to focus on is how old your accounts are. The longer your credit history is, the better since it demonstrates to mortgage lenders that you know what you’re doing when it comes to things like loans or credit cars. If you’re tempted to close any old accounts you don’t use, don’t–that can actually work against you when you’re trying to buy a home.
2. Correct Errors and Mistakes
While you’re browsing around your report, you want to be on the lookout for any signs of suspicious activity on your account. If you see a credit card that you don’t recognize or you’ve got balances on cards that you don’t normally use, that’s a big red flag that someone may have stolen your information. You’ll need to contact your creditor and the reporting agencies to issue a fraud alert to prevent additional fraudulent charges.
You’ll also want to check for errors or inaccuracies, such as a balance that’s being reported incorrectly or payments that weren’t applied properly. If you spot something that doesn’t seem right, you’ll want to initiate a dispute with the agency that’s reporting the information. Getting even a seemingly minor error corrected or removed altogether could mean the difference between a so-so credit score and one that’s good enough to qualify for a home loan at a great rate.
3. Stay on Top of Payments
By and large, your payment history has the biggest impact on your credit score. When you’ve got a bank that’s considering lending you hundreds of thousands of dollars to buy a home, you need to be able to show them that you’re capable of making your payments on time, every time. While nothing but time can diminish the negative effects of a late or missed payment, you can and should be making sure everything’s paid up by the due date going forward.