A borrower’s credit score is one of the most significant driving factors that can influence the interest rate and loan terms they qualify for, and this can impact the mortgage payment and even loan qualification and approval. Because of how important a credit score is in the home loan process, many are searching for ways to improve their credit score. This can be an advantageous step for many to take, and the good news is that there are several tips to follow to improve a credit rating.
Reduce Outstanding Balances
It is not necessary to have all debts paid off in order to have a great credit score, but a credit rating can be dinged if outstanding balances are too high. Paying off accounts that have a low balance and reducing balances on accounts that are close to being maxed out can be beneficial. For those with very high debt levels, simply spending a few months focusing on reducing balances can result in a considerable improvement to credit scores.
Make Payments On Time
Late payments can be detrimental to a credit score, and credit scores are more significantly impacted by recent late payments than by those that are several years old. If a credit report shows late payments, continuing to make payments on time and avoiding any future late payments can improve a credit score. Otherwise, continuing to make payments while reducing balances can result in a slow improvement to a credit rating.
Avoid Taking On New Debts
A credit rating is a reflection on the creditworthiness of a borrower, so making payments on time and reducing balances gradually over time can be beneficial. In addition, avoiding taking on new debts for the months leading up to a mortgage application can also be beneficial. This may mean delaying the purchase of a new car or making other significant purchases until after the mortgage process has been completed.
Improving credit scores is generally not something that is done overnight, and it may take several months of effort before results are seen. These tips can all result in an improvement to a credit score, but some borrowers may qualify for a great interest rate with their existing credit score.