Everyone knows that credit scores matter for buying a house, especially nowadays with tighter lending standard for banks and credit unions. And although you can land financing with bad credit (often for lower limits and poorer terms), everything is so much easier when you have a good credit score.
So if you have borderline credit, it’s time to build a plan and work toward improving your credit score. It doesn’t have to take years or even months – there are several things that you can do to improve your credit score within a matter of mere weeks.
Check out these 6 ways to boost your credit so you can buy a house in Boston.
1. Pay Down Debt
First and foremost, the most effective step you should take in boosting your credit so you can buy a house in Boston is paying down your debt. Reducing your debt will be a major factor in determining whether you get a mortgage to buy a house.
Paying down debt improves your debt-to-income ratio – one of the primary measures that lenders consider. Lenders prefer that your total debt payments take up a relatively small portion of your total monthly income. Eliminating a payment – such as paying off a car or installment loan – may help you qualify for a mortgage. Most lenders require a back-end DTI (the total amount of income allocated toward debt, including your potential mortgage payment) of no more than 43%. So by paying down a credit card balance or paying off your car loan, you will immediately lower your Debt-To-Income and increase your odds of approval.
DTI doesn’t directly affect credit score, but paying down debt will because it reduces your utilization (which, remember, accounts for 30% of your score). The more of your available credit you borrow against, the more it can negatively affect your score. So by reducing how much debt you have to your name, you become a much more attractive borrower.
2. Understand Your Credit Score
The next step in improving your credit to buy a house in Boston is to understand what your credit score is and what it means. That way you’ll be better equipped to go about boosting your credit.
Experts explain: “Your credit score, also called a FICO score, is a three-digit value ranging from 300 to 850. This number indicates how likely you are to repay your debt. This score is based on info in your credit report that comes from the three major credit bureaus: Transunion, Equifax, and Experian.”
A credit score above 670 is typically considered “very good,” and a credit score below 600 would be considered “weak.” The higher your score, the greater your access to a mortgage with a better rate and terms – which saves you a substantial amount of money in the long run.
Here’s a breakdown of the factors that go into determining your credit score:
- 35% – Payment history
- 30% – Utilization ( the amount of credit used divided by the amount available)
- 15% – Length of credit history
- 10% – Credit mix (installment accounts being more favorable than revolving accounts)
- 10% – Number of new credit accounts opened in a short period of time
3. Check Your Report and Dispute Errors
Be sure to check your credit report and see if there are any errors or inaccuracies. If so, dispute them immediately. Such errors can negatively impact your credit score profoundly.
You can receive a free copy of your credit report at annualcreditreport.com, and then review it meticulously. A report by the FTC found that one in five consumers had an error on at least one of their credit reports.
Be sure to look out for:
- Incorrect names or addresses
- Credit lines that aren’t yours
- Paid debts that are listed as still outstanding
Disputing errors and then having such mistakes corrected can immediately boost your credit so you can buy a house in Boston.
4. Increase Your Credit Limit
Another effective credit-boosting tactic to help you buy a house in Boston is simply to increase your credit limit. This can boost your credit score because, although it won’t alter your debt-to-income ratio, it will lower your credit utilization. Your debt stays the same, but your available credit increases, and so your utilization is lower. This is partially why financial experts suggest that you keep old credit card accounts open, even if you carry a $0 balance
Often, all it takes is applying through your credit card company’s website (although sometimes it also requires a phone call). Just be aware, though, that if your credit has taken a hit since you opened that credit card account, the company may lower your credit limit instead of increasing it.
5. Consider a Credit-Builder Loan
You should also look into getting a credit-builder loan to boost your credit so you can buy a Boston house. Doing so can help you diversify your credit and boost your score a bit.
Here’s how a credit-builder loan works – these small loans, which are typically less than $1,000, aren’t really loans at all ― at least not in the traditional sense. The financial institution deposits the loan amount into a locked savings account you can’t access, and over the next six to 24 months, you pay off the loan just as you would with any other loan. Once the loan is fully paid off, the accumulated money is returned to you in total.
And the really good news is that credit-builder loans often don’t require a traditional credit check in order for you to qualify.
6. Use Someone Else’s Credit
You can also piggyback on someone else’s credit to boost your own credit to buy a Boston house. All it takes is asking a trusting family member or friend with good credit to add you as an authorized user on their credit card.
When you do this, the account information is reported on both your and the other person’s credit report. You don’t even have to use the credit card either. This won’t boost your score a lot, but it can help.
Are you ready to start boosting your credit so you can buy a house in Boston? If you are, contact us at NextHome Titletown Real Estate for even more tips. To find out how our qualified agents can help, just give us a call at (617) 657-9811 or send us a message.
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