Your Credit Score and Purchasing a Home, Part 2
- Oct. 1, 2015
- Shantell Russell
- Personal Finance
When you decide to apply for a home mortgage, you'll need to demonstrate to the lender that you are a qualified borrower. One of the key factors brokerage firms consider is what your credit history looks like.
If you have not yet established a credit score or need to improve your current one, it's crucial to start taking steps toward that today—especially if you want to become a homeowner in the near future.
The two keys to ensuring the credit you establish will work in your favor is paying on time and doing it in full. Whenever you receive your statement, avoid only paying the minimum amount if possible. Paying on time and in full demonstrates you have sufficient cash flow to cover the expenses you accrue and shows you are a responsible borrower who has a good head on your shoulders when it comes to financial management.
Establish a routine to ensure you stay on top of all payments. Consider marking it in your calendar or commit a day to paying bills before they are due to making sure you make all payments.
Don't Borrow More Than You Can Pay
If you are working to establish a good credit score, never take out a loan or charge your credit card more than you can pay by the end of the month. This may indicate to creditors that you are having difficulty with your finances and don't have the proper funds to cover the costs associated with your lifestyle.
Always keep your monthly statements within your budget to build up a good credit score.
According to SFGate, you may want to only use 30 percent of your overall credit limit to keep it within the bounds of your financial capability. For example, if your credit card limit is $2,500, then you should charge no more than $750 on your card each month.
Keep Rent History in Mind as Well
It isn't only your credit score that matters when applying for a home loan. Many lenders will also request your current housing history. Being able to show you have stayed on top of monthly rent payments demonstrates you are fiscally responsible.
Whenever paying rent, SFGate suggested using a check or debit card so you have proof of payments made throughout your time in an apartment. This paper trail can be used to your advantage when applying for a U.S. home mortgage.
Applying for a home loan can be a bit overwhelming and nerve-wracking. However, armed with a good credit score and the abilities to demonstrate your financial responsibility, you can increase your chances of securing a good loan product with a lower interest rate.