One of the most important things you can do to start becoming financially independent is getting a mortgage. However, it requires proper planning. It is also not an easy feat, but it will be worth all the hassle if you play your cards right.
Many factors affect your chances of getting mortgage loans. The first one is having a low credit score. People with low credit scores can still get a house, but they need to improve their number before applying for a loan.
Most know that they can increase their credit score by paying their bills on time. However, other less-explored ideas can tremendously help:
1. Get an Active Checking Account
Having an active account can make all the difference when it comes to boosting up your score. The account can list down your daily or regular transactions, and this data can help lenders determine your level of fiscal responsibility or accountability.
You might need about six to twelve months (or longer on how much information is available on you) of activity before it can really help, but the benefits are worth every second.
2. Keep Your Existing Accounts Open
If you plan on applying for a loan and want to improve your score, keep all your accounts open. This might sound like a bad thing to do because it means that you don’t know how to manage credit, but people judge you based on how much money you already owe.
If they see that you have had the same accounts without any problems since at least six months before applying for the loan, they will see that as responsible behavior instead.
3. Don’t Close All Your Accounts
Having too many new accounts might give the impression that you are irresponsible with finances or are in desperate need of money, so it is best not to close them immediately before applying for the loan. Having two or three old accounts will show responsibility while still allowing you to establish some credit history.
4. Get a Secured Credit Card
If you don’t have any credit available or your score isn’t high enough to get a regular loan, consider getting a fully secured credit card account. This means that the lender will keep whatever cash you deposit on the account as collateral. In return, they will give you a low interest rate and sometimes no interest at all.
5. Don’t Apply for New Credit Cards or Loans
Another reason people’s score drops too low is that they apply for multiple credit cards to improve their limit. However, when you do this, it also sends a red flag that you are desperate for money, which lowers your score even more.
Moreover, many lenders will create a hard inquiry when you apply. This information can reflect on your credit score and further brings the score down. It might be only a few points, but when yours is already low enough, the impact is still significant.
6. Don’t Close Accounts with an Active Balance
If your bank account has an active balance, you need to ensure that you don’t close it. The banks see the active accounts with balances as good payment history. They know that there is some form of money deposited in them at all times.
7. Keep Low Debt on Your Cards
One of the easiest ways to build and improve your credit is to get and use credit cards. However, maxing them out isn’t good either.
It tells the lender that, first, you don’t have money to pay for your needs. Two, you are not responsible for handling your finances since you depend a lot on these cards.
Too much credit card debt is also dangerous. Interest rates are often high, and that makes it harder to pay off balances. In other words, you run the risk of falling behind your repayments, and that is a mortal sin as far as rebuilding your credit score is concerned.
You need to keep the debt ratio under 30 percent of available credit. Remember, your credit limit is not a limit but the maximum amount you can utilize from the available credit you have. If you owe $500 on a card with a limit of $1,000 and it’s already maxed out, then you need to pay down your balance as soon as possible.
Here’s an important piece of advice when trying to improve your credit score: be patient. It might take about a year or longer, but if you play by all the rules, then there’s nothing that should stop you from getting a loan with the best possible terms.