To get your credit where it needs to be for home loan preapproval, here are five things you can do:
1. Check your credit report: Obtain a copy of your credit report from all three major credit bureaus (Equifax, Experian, and TransUnion) and review it carefully for any errors or discrepancies. If you find any inaccuracies, dispute them and work towards getting them corrected.
2. Pay bills on time: Ensure that all your bills, including credit card payments, loans, and utilities, are paid on time. Late payments can have a negative impact on your credit score, so make it a priority to meet all your financial obligations promptly.
3. Reduce credit card balances: Aim to lower your credit card balances and keep your credit utilization ratio (the amount of credit you’re using compared to your total credit limit) as low as possible. Ideally, aim to keep it below 30% to demonstrate responsible credit management.
4. Avoid new credit applications: Minimize the number of new credit applications you make, as each application can result in a hard inquiry on your credit report, which can temporarily lower your credit score. Be selective and only apply for credit when necessary.
5. Establish a positive credit history: If you have limited credit history, consider opening a secured credit card or becoming an authorized user on someone else’s credit card to start building a positive credit history. Make sure to use credit responsibly and pay off the balances in full each month.
Remember that improving your credit takes time, so it’s important to start early and be consistent in your efforts. Working towards a good credit score will increase your chances of obtaining a favorable home loan preapproval.
Things to watch out for when getting preapproved for a home loan:
When seeking preapproval for a home loan, it’s crucial to consider specific factors that can impact the amount you’re preapproved for.
1. Avoid making major purchases before preapproval, such as buying a car, as it can significantly impact your preapproval amount, for example, a car purchase of $20,000 right before preapproval could potentially decrease your preapproval amount by $100,000.
2. Be cautious about opening new lines of credit or accumulating additional debt, as it can affect your debt-to-income ratio and potentially lower your preapproval amount.
3. Maintain a stable employment history and avoid changing jobs during the preapproval process, as it can raise concerns for lenders and affect your loan eligibility.
4. Avoid late payments or defaults on your existing debts, as it can negatively impact your credit score and potentially lead to a lower preapproval amount or loan denial.
5. Ensure that your credit report is accurate and free from errors by regularly monitoring it, as any inaccuracies can affect your creditworthiness and subsequently impact your preapproval amount.