How to Build Credit to Buy a Home

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How to Build Credit to Buy a Home

Real estate purchases are often made possible with mortgages. When you apply for a mortgage (or any financial aid, loan or borrowing off of personal credit), they must first review your credit score before deciding to help you buy a house.

Banks sometimes approve mortgages for people with low credit scores. However you have a much better chance of getting approved for a mortgage at a good rate approved if you have a good credit score. 

What is credit, and why do you need it?

If you are still confused about what credit means, then you should first hold off your plans of getting mortgages. Credit scores are financial indicators that help banks and lenders decide whether they will grant you a mortgage or not. 

Credit scores are also somewhat similar to levels in a game.  In a game’s “leveling” system, players can access certain content that is not available for players with different levels. Banks grant loans that can have different amounts, payment structure, and duration to people depending on their credit scores. 

Sadly, banks do not just hand out mortgages to everyone who is in need. Every individual has to submit a credit report along with their application for mortgages. If you have a bad credit score, then your mortgage application will likely be denied by banks. 

The Importance of Good Credit Scores

credit score

Almost all banks immediately approve mortgages of people after seeing their good credit scores. Also, having a good credit score can expedite the whole process for you when you are applying for a mortgage. Aside from that, it may lessen the interest that you have to pay throughout the duration of the loan. 

A good credit score is basically a “pass” for you to get approved quickly on mortgage applications. This gives them an assurance that you will pay on time, and you will complete your payment as agreed upon. 

Are you worried that you might not get a mortgage because of your not-so-good credit score? Follow these few steps to increase your credit score, get the mortgage, and own the house you want! 

Consider these steps to improve your Credit Score

How can you get a good credit score?

Try following these steps:

Check your Credit Report

Review your own credit status before reporting it to banks as part of your mortgage application.  The Federal Trade Commission (FTC) released a report indicating about one in five Americans had discrepancies on their credit statuses.  

You can get an authentic copy of your credit report from federally-authorized websites only.  Check for errors on information such as duplicate records, account status, and recent transactions. If you find any error on your credit report, raise a dispute immediately. 

Seek help immediately from Federal agencies if you will raise a dispute regarding your credit reports. Make sure to follow their processes and guidelines to resolve disputes successfully. 

Settle some of your debt

Once you have reviewed everything and no errors are found, you need to do the next step. Debts are crucial when applying for mortgages, and you should reduce it as much as possible. The debt-to-income ratio presents to banks on how you will manage to pay monthly dues in your loan’s duration. 

Make a priority list for your debts so that you can manage your finances more efficiently. If you have the financial capability, then start paying off the largest debt that you hold immediately. But if your financials are not that good, you can always slice up your debts and pay them off gradually.

Debts must not be left unchecked, because not only will impact your credit score, it may also affect you personally. Indeed, you do not want to be chased off by people ushering you to pay off your debts, right? 

Apply for an increase on your credit limit

credit limit

If you cannot pay off some of your debts, then you can go the other way. You can ask for a credit limit increase from your credit agency. Having an increased credit limit does not reduce your debts so you still have to pay them eventually. 

Having an increased credit limit helps improve credit score, increasing the chance of banks approving your mortgage application. However, you must keep in mind that credit companies conduct a credit check before granting an increase. Avoid doing more harm than good by assessing your credit status first before applying for an increase. 

Submit a Rescoring Request

If applying for a credit limit increase did not work, you can ask credit agencies to rescore your credit status. It requires approval first before your credit report can be updated. This gives you a better chance of getting that mortgage and saves you the effort to clean your credit status. 

You may have to be patient before you get your credit report updated. Credit agencies also run a credit check before rescoring anyone’s status, and it can take weeks up to years.

Use someone else’s credit status

Not a fan of long processes? You can use other people’s money or credit. You can have your name registered as an authorized user of your friend or relative’s credit card. Once you are an authorized user, your information is shared with other owners and theirs to you.  

It is important that you become an authorized user to an account that has no negative records. Being added to an old account with clean records is much better. This helps your credit go higher and saves you time from increasing your credit score by yourself.  

Be persistent

As the famous saying goes, “Try, and try until you succeed.” You have to convince banks to give you a chance by showing them that your credit score can be improved. Exhaust all available options to improve your credit score, after all, you will benefit from it.  

Do you want to own a house, but you need a mortgage to do so? Then present a good credit report to banks or other financial institutions that can help you. Do you have a credit score that is below average? Then do these few steps to raise up your credit scores and increase your chances of getting a loan! 

 

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