How To Get My Credit Ready To Buy A House

Dated: October 19 2020

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Buying a home can be a rather daunting task. There is so much more involved than just packing your bags and finding your dream home. But, with preparation and dedication, becoming a homeowner can be a reality! Home buyers, especially first-time home buyers, wonder what they need to do to buy a house?

Undeniably, one of the most important aspects when buying a home is your credit. By reaching out to a REALTOR®, they can advise you or direct you to the appropriate professionals to help you prepare your financials for your home-buying journey. Although it is always important to defer to an expert to address your specific situation, here are some of the most important, agreed upon aspects to building, repairing, and maintaining good credit:

Improve Your Credit

A good to excellent credit score is key to finding the best deals on the market. No credit or bad credit? No worries. It is more than possible to build or repair your credit. Just remember, the road to improving your credit and achieving financial freedom is a marathon – not a sprint. There are several factors that determine your credit score. Focusing on these is a great way to help your score.

On-time Payments

Do you pay your bills on-time? Do you currently have delinquent accounts on your credit report? The greatest portion of your score, 35%, comes from making your payments in a timely manner. 

Credit Utilization

It's easy to get carried away with that shiny new credit card. Be careful to not max out your limit -- or even approach it -- if you want to keep your credit in pristine shape. Your usage makes up a whopping 30% of your score. The recommended credit utilization is no more than 30% of your total credit allowance. However, a lower utilization percentage around 10%-15% is preferable.

Quick Breakdown. If you have a limit of $1000 and your balance is $500, you're utilizing 50% of your credit. This impacts your score! Watch how much you swipe and try not to carry a balance from month-to-month. If you must carry a balance, pay down your cards mid-billing cycle to lower your average daily balance. This can help you save on interest.

History

15% of your score is attributed to how long you've had credit lines. You can't control time, but make sure to start building credit as soon as possible. A credit card from a reputable bank is a great way to get started.

Inquiries

Watch out how often you apply for credit. 

Many times banks or other lenders will initiate a hard credit report inquiry when you apply. A few inquiries on your report won't affect your score. However, if you start to accumulate numerous inquiries, especially in a short period of time, your score will likely take a ding. Lots of inquiries make you seem risky. 10% of your score comes from this category.

Thankfully, inquiries will disappear from your credit profile after two years, automatically giving your score a tiny boost.

Credit Mix

Do you only have credit cards? Or, what about a wallet full of department store cards? (Eeekk!) The final 10% of your score depends on what your credit mix looks like. In addition to cards, various loans (like student loans, car loans, personal loans, etc.), and mortgages contribute to your credit mix. Improve your score by adding variety of accounts to your credit history -- just make sure you handle them responsibly by taking care to follow the above factors, like utilization and making on-time payments.

Your credit is the most important factor in the road to homeownership. Use your credit lines responsibly to build and maintain a healthy credit score -- and eventually you will achieve the coveted 700+ score that will land you the best deals on the market.

Are you looking to purchase a home in the next 6 months, year, or even a longer than a year? It is never too early to begin preparing for your purchase. In fact, the earlier the better! Building your credit and saving for your down payment can ensure that you get the best interest rate and terms possible.

Reach out to one of our Experts! With our expert knowledge of the Nashville real estate market and our vast network of lenders and financial planners, we can help you start the journey.

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Holden Parker

Meet Holden. Holden is a licensed REALTOR® and serves as the Director of Marketing at Music City Experts. He’s the face behind social media, blog articles, website content, and graphic design for t....

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