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Your Credit and the Home Buying Process

This month I’m taking us way back to the beginning – the very start of the home buying process. This month I’m talking about credit scores. So, really, I’m talking about preparing yourself for the home buying process!

In my first blog post I talked about the importance of getting a preapproval in the home buying process. But today I’ll be talking about setting yourself up for your preapproval by making sure you have a good credit score.

Working on your credit isn’t the most exciting topic, but knowing the important factors that determine your score, and having a good idea on ways to work on your credit will put you in a great spot for buying a home.

I’m eager to go over credit because I feel it’s an intimidating topic for many clients and, truly, it doesn’t need to be! So what I hope to do with this post is present enough useful information about building good credit to empower my clients to feel ready to tackle all their personal credit concerns!

The best part is that when you dive into how your credit is scored, you’re going to learn there are many easy ways to game the system and improve your credit!

People think that their bad credit is a life sentence, but it’s not. For many, making the right adjustments can help improve your credit almost immediately.

Of course, this post is only a starting point. For some, it may be a few good reminders. But for others really looking to improve their scores, I hope this post will provide you with a good introduction into building good credit.

For those looking to dive deeper into building your credit, I recommend Color My Credit: Mastering Your Credit Report – And Score – One Crayon at a Time by Alisa Glutz

In fact, I’m offering all my clients a free copy of this book. Reach out to me if you’re interested. I’ll be glad to send one your way.

In her book, Alisa Glutz parses through what is most important when it comes to your credit. Knowing what’s important to lenders will help you focus on the important areas to work on.

For example, everyone knows paying off credit card debt is essential to improving your credit score. But for people with multiple lines of credit with debt, what’s the best way to go about paying it back?

Highest balance? Highest interest rate? In fact, to improve your credit score, it might be better to look at the credit limits for each account and pay down the ones with balances close to their limits first.

This strategy helps improve your credit utilization rate, which calculates the amount of revolving credit you’re using out of your total available credit. This rate is an important factor in your credit score. (It can make up to 30% of your credit score, according to NerdWallet).

Another way to lower your rate is by requesting an increase in your credit limit. This might seem counterintuitive: how does asking lenders to give you more money to borrow make you a better candidate for a loan?

But, remember, you’re only playing with the numbers. You’re not necessarily – and I can’t stress this enough that you shouldn’t –  actually borrow more. You’re only raising your limit to lower your credit utilization rate.

Developing good habits like paying your bills on time and only utilizing a small percentage of available credit will set you up to improve your credit score and keep your score healthy over time.

There are a few other tips that can help you improve your credit almost immediately.

First, if you have family or friends with good credit who are looking to help you, you can become an authorized user on their credit card accounts. Your score can benefit from their good payment history and higher credit limits.

This can be a great help for those with lower credit scores or no credit history who are struggling to get credit from lenders.

Another effective tip is to review your credit report thoroughly and dispute any errors. Everyone is entitled to a free credit report from the major credit bureaus, so there’s no excuses to follow through on this tip!

Working on and constantly tracking your credit – your utilization rate, paying down debts, adding and maintaining accounts – can feel daunting and exhaustive, but it doesn’t have to be!

The biggest battle for most consumers is creating good habits. I recommend taking things step by step. Start with one approach for improving your credit and master it. Then move on to another approach, building one step at a time and slowly setting yourself up for success.

Another battle consumers face is a fear of applying for credit or loans. I have clients who don’t want to open credit card accounts because all they hear about is debt. But these accounts not only help build your credit and show lenders a successful track record for making payments and managing your money, they often offer cash back and reward programs for using them.

Personally, I make hundreds of dollars a year with the rewards from my credit cards, and I rarely ever pay interest, meaning I’m getting paid to build my credit!

Though there are many layers to credit and many factors that go into a credit score, when you break down the components and focus on only the important details, you see that managing your credit is nothing to fret over.

Developing good spending and borrowing habits to help build up your credit will not only be a key to buying a home, but good habits will help you maintain strong credit to give you flexible options should you decide to buy a different home or if you’re interested in investing in real estate.

With time and knowledge, improving your credit is not an intimidating idea but a very approachable task.

Still, your credit score and improving your credit is complex and a complete understanding of it far exceeds the reach of a single blog post. But I hope I’ve helped you better understand the fundamentals and given you the confidence to become the credit guru that you can be!

If you’re interested in learning more about improving your credit score, please reach out to me for a free copy of Color My Credit: Mastering Your Credit Report – And Score – One Crayon at a Time by Alisa Glutz.

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Melanie Graham

Melanie Graham