You are smart if you are looking for ways to improve your credit score to buy a house. A higher score means a lower interest rate. And since your mortgage is probably the most debt you’ll ever have, even a small interest rate cut will save you truckloads of money over the life of the loan. Here’s how you can improve your credit score fast.
Credit Score Tip #1 – Get an Installment Loan
Who would think that borrowing money would help you get a loan, but it works. Getting an installment loan of some sort does help improve a credit score quickly. In order to qualify for a home loan, you need to already have a history of repaying monthly debt. The debt could be in the form of an auto loan or personal loan. You should have a history of making payments on time. That shows a bank that you can get repay your home loan on time as well.
Neal’s notes – Some people consider buying a house with a friend as a way to get over the credit hurdle. This might help buy the house but it often works out very badly. I suggest against doing this.
My coworker was left with huge amounts of debt after a messy divorce, and he needed to rebuild his credit. He took a small $500 personal loan from his local credit union and repaid it over six months by simply paying back their own cash plus about $10 of interest overall. He said that it was the best $10 he ever spent since his credit score became useful once again.
Credit Score Tip #2 – Pay Your Bills on Time for at Least a Year
You may have had some credit hiccups in the past, but they can be cleaned up by establishing a good payment history. You can improve your credit score range to buy a house by establishing a recent credit history of making payments as agreed. Pay all of your bills on time for at least a year before applying for a home loan. This will help your credit score and show banks that you are serious about loan repayments. If you are in debt, don’t go for any debt relief scams. They may help you short-term, but they’ll cost you big time over the long haul. Pay your debts if you want good credit.
Credit Score Tip #3 – Pay Off Your Revolving Loan Debt
Reducing revolving loan debts like credit cards can be a huge help. Paying off some of your outstanding revolving loan debt serves two purposes. First, it improves your credit score by reducing the amount of outstanding debt on your credit report. Secondly, it will lower your monthly bills and increase your padding for owning a home. A lower debt-to-income ratio improves your credit. What is the best way to get out of credit card debt? Start tracking where your money goes and stop spending money you don’t have.
Credit Score Tip #4 – Ask for a Credit Limit Increase
Another way to bump up your credit score to buy a house is to show that you have more available credit than you are using. You can do this by asking your credit card company to increase your credit lines. This also means that you should not close any lines of credit for the year leading up to home ownership. This will show potential lenders that you have unused credit available, which means you do have backup plans if absolutely necessary.
My husband and I followed our own advice. For a few years before we went house hunting, we took out a few 0% loans on furniture we were going to buy with cash anyway. We paid those loans back with that same cash without ever paying a penny of interest. By the time we applied for our first mortgage, we had excellent credit ratings even at age 23 and were able to qualify for the lowest rates available at the time.
What other tips can you think of to improve your credit score to buy a house?
This is a post from staff writer Crystal at Budgeting in the Fun Stuff, where she writes about finding the balance between paying your bills, saving for your future and budgeting in the fun stuff along the way.