In addition to your down payment, your credit score is another important factor in qualifying for a mortgage. Before you meet with a lender, you might want to pull your own report to see where you stand and determine any area’s for improvement.
Dispute any incorrect information. It’s important to review your credit report on a regular basis to ensure there are no errors. You will want to ensure that any outstanding balances are correct, your payment history is correct and the account statuses of your accounts are correct.
Common credit reporting mistakes include a paid or closed account not updated to the correct status and a paid or closed loan still showing a balance owing. If you notice any errors, you will want to open a dispute with the credit bureau.
Have at least three items on your credit. Lenders like to see a variety of loans on your credit report and a consumer with good payment history for three loans will most likely have a higher credit score than someone with only a single loan on their report.
Decrease your utilization ratio. Your utilization ratio refers to the balances you currently owe relative to your card limit. You should aim for a ratio of 30% or less, the lower the better. If two people have identical credit history, except one owes $200 on a $3000 limit credit card and the other owes $2000 on the same $3000 credit card, the person with a lower balance will have a better credit score. Making large payments on credit cards will help to improve your utilization ratio.
Pay your debts on time. Payment history is an important factor in determining your credit score. Even if you can only pay the minimum payment, on time payments are key to improving your credit score. Just one late payment can cause a decrease in your score.
Resolve negative items to provide your credit score. If you have any collections on your credit report, you’ll want to get those cleared up right away, provided you are able to make your other debt payments on time. Start with the newest ones since they have the biggest effect on your score, if you can’t pay the newest ones, then start with the smallest.