Shopping for a new home should be an exciting experience, but if you are unsure of where you stand with your credit, it can be a little nerve-wracking. Having good credit will not only help you secure more favorable interest rates for your mortgage, but it can also help you avoid less favorable loan structures, higher down payments and additional costs such as PMI (Private Mortgage Insurance). The best way to prepare yourself for your financing is to whip your credit into shape before your hunt begins. Check out three ways to help prep your credit.
Collections are delinquent accounts that can seriously affect your credit score. Review your credit report and address any collections that are listed. If there are some recorded by error, file a dispute with the credit bureaus. If you owe the debt and can pay it, contact the collection company and ask if you can satisfy the debt by paying it and have it removed from the report. Finally, if you cannot afford to pay the total debt, discuss settlement options with the creditor.
Opening a new credit card or credit account can affect your credit in multiple ways. First, it will count as a hard inquiry, which can slightly lower your score. Second, it may change the average of your credit history. Mortgage companies don’t like to see a lot of credit being gained right before a mortgage is being established, so if it can wait, let it wait until the mortgage is secured.
If you have the means to reduce the balance of your credit cards, now is the ideal time. Your credit score is affected by your credit card balances in two primary ways. The first being the amount of debt that is listed on all of your credit cards. The second is the ratio of the amount owed on your card in relation to the credit limit on the card. A good ratio is less than 30%, so to keep your credit score high, you will want to be below this percentage. Paying a sizable chunk of your debt can increase your score by several points and improve your debt-to-income ratio. Just be sure to do this at least thirty days out so that the new balance is reflected when your score is pulled.
Don’t let poor credit lower your chances of buying the home that you always wanted. Follow the tips above to pump up your credit before applying for your next mortgage. Even a few points can mean significant savings.
Kimberly Kelly decided to get her real estate license when she moved to South Orange with her family and fell in love with the classic, period homes of the area. Having worked in the city for many years for LexisNexis, Kim understands the appeal of an easy commute to NYC. That’s why she specializes in towns along the Mid-Town Direct train line, offering welcoming communities, good schools, and space to grow.
Very active in her children’s school PTA, Kim knows firsthand how important a school system is to parents looking to make the move to the ‘burbs. She volunteers with fairs, fundraising, and other activities that bolster support for education. Kim also believes involvement in the greater community enriches us all and has sat on various boards & associations throughout the years.
Kim Kelly has lived many places throughout her life, from Pennsylvania to Oregon, but has found New Jersey to be the ideal place to raise her family and put down roots. She loves nothing more than helping others discover their special place as well. Kim’s extensive knowledge of the area, combined with her sense of community, offers clients a personalized guide to finding the right house - and town - to call home.
