Most lenders require that you have a certain credit score in order to qualify for a mortgage. This can range anywhere from the high 600s for traditional lenders such as banks and mortgage brokers, to the mid-high 500s for government-backed loans from the FHA or USDA. Getting your credit score up to these minimums can be difficult, but there are a few things you can do to get yourself to that point, such as:
Paying Down Consumer Debt
Credit utilization—the amount of your available credit that you are currently using—makes up a large part of your credit score. If you have a $1,800 balance on a credit card with a $2,000 limit, your score will likely be lower than someone with a $200 on the same card. Paying down your credit card balances reduces your credit utilization ratio, improving your score immediately.
Getting a Secured Credit Card
If you cannot get approved for a regular credit card, you can usually find a bank willing to give you a secured card. You will send them a deposit for the full amount of the credit limit and use it just like a regular card. This helps build a good payment history and if they approve you for an unsecured card or you close your account, they will give your deposit back.
Checking Your Credit Report for Errors
Any error on your credit report can be detrimental to your credit score. Pull your credit reports at least once a year, or before a major purchase, to make sure everything looks correct. If you do find an error, you will want to take steps to remove the incorrect information from your credit reports, more info at Debited.com.
Make Your Payments On-Time
Late payments can tank a credit score quickly, but a history of on-time payments can help it out tremendously. Lenders, such as those at Republic State Mortgage Co, typically look at both your credit score and your credit report when deciding whether or not to give you a home loan. If you pay your bills on time, they are far more likely to give you a loan since your score will be higher and you have shown you are able to pay your bills in a timely manner.
It can take time to build up your credit score to the point where you would be deemed an acceptable risk to lenders. Staying out of financial trouble for 12 to 18 months while paying off any debt you have can significantly increase your score, especially if it is currently relatively low.