Home Purchase Loans: How to Raise Your Credit Score


There is currently a large inventory of reasonably priced houses on the market. This is the most extended period of affordable housing we’ve seen. Given the state of the market, why isn’t everyone buying homes right now? Many people just starting their careers are exploiting this low-cost housing market. Many see this as an opportunity to quickly get rich by investing in real estate. Even though property prices have been at their lowest in many years, lenders are highly selective about who they give loans. Whether or not a lender grants you a loan and at what interest rate heavily depends on your credit score.

A few short years ago, borrowers with a credit score of 500 or below could successfully purchase a home. The required minimum score now is between 620 and 640. A credit score in the 700s is required for the best loan terms. You should always be aware of your credit score. Here are some simple steps you may do to raise your credit score if it isn’t already close to 750.

What follows is a breakdown of the factors that go into calculating your credit score, followed by advice on improving each element.

Your payment history accounts for 35% of your credit score and includes the amount owed to creditors and late payments, collections, judgments, and tax liens. Therefore, you must pay your car, credit card, and loan bills on time. It’s essential to have a good rental payment history because many lenders check that as well. Payments received within 30 days of the due date are deemed to be accepted on time. You must show proof of fee for any collections, judgments, or tax liens on your credit report. If you have outstanding collections, you may be able to settle for less than what is owed through negotiation. As long as the credit report reflects the account as paid as a whole, the effect on the credit score is similar to that of a complete payment.

In addition, you can have tax liens removed from your credit report after making payment arrangements and waiting 12 months. All outstanding judgments must be paid in full at the loan’s closing, and the credit report must be updated to reflect the payment. Even if there has been a pattern of late payments in the past, we often find that “time heals all wounds.” Getting your credit score might take a year or so of consistent on-time payments. You can ask the credit reporting agency to remove or correct inaccurate information from your credit report by filing a dispute.

Credit card debt as a percentage of available credit accounts for 30% of your credit score. Here’s a case in point: With a $1,000 credit limit and a $750 balance, your credit utilization rate is 75%, while your available credit is 25%. If everything else is the same, your credit score will increase as your utilization ratio decreases. Three approaches could raise that figure. Paying down your credit card balance quickly is one way to achieve this goal. Your credit card limit may be increased at your request. New card packs are available, too. However, you should proceed with caution regarding the last two.

Ask your credit card company if they will approve your request to increase your credit limit based on your payment history with them. If you don’t, they’ll open a credit investigation, which might temporarily reduce your score. I think requesting a higher credit limit is still worth the potential hit to your score from a credit inquiry. Your credit score should increase overall, but I have occasionally witnessed a temporary decrease. If you have a low credit score and your credit limit increases, resist the urge to use the extra available credit to run up more charges. In a similar vein, opening a new credit card account will result in two negative marks on your credit report: a credit inquiry and a new credit account. Both of these will be elaborated on shortly.

The length of your credit history influences your score by 15%. Let’s look at another illustration: Imagine you have two credit cards. One card has been in your possession for five years, while the other has been around for three. Your credit report will reflect that you’ve had credit cards for an average of four years. By getting a new card, you can cut that figure in half, to around 2.7 years, from the previous standard of 4 years. This can hurt your credit score because of the shorter credit history. That’s why getting new credit cards won’t help your score overnight. But let’s evaluate the situation in twelve months. The average length of your accounts would increase to 3.6 months within a year of acquiring the new credit card; thus, including this action as part of a longer-term strategy is likely a good idea.

Again, you can see that opening a new credit account hurts your credit score because it reduces your average length of credit and stands as a negative factor on its own. This is why a credit inquiry can lower your score. It is “assumed” by the system that you are applying for new credit whenever there are queries, even if this is not the case. If you took a look at new cars while you waited for your car to be serviced and ended up placing an offer on one that the dealership knows you will be financing, they would check your credit (with your consent, of course) before finalizing the sale. Your credit score will drop significantly due to the investigation, even if you do not purchase the new car. Credit inquiries from the same company within 30 days will be aggregated into a single question. You can minimize the impact of multiple queries on your credit score by making large purchases, like a car or a house, within a short time frame, say 30 days.

The credit mix, or the variety of credit accounts you have, accounts for the remaining 10% of your credit score. Credit cards, auto loans, mortgages, and other long-term installment loans look well on a credit report. It takes time to improve one’s credit score, and you should be wary of someone who consistently uses high-interest, high-risk lenders. No, I can’t give their name, but these financing companies offer unsecured home goods loans at exorbitant interest rates that can hurt your credit. Having an account with this type of company is not terrible now. Most collaborate with retailers to provide interest-free financing for ninety days or more. So long as you aren’t making frequent use of them. Once your credit history is established, you should be able to apply for credit cards with reasonable interest rates and possibly even an installment loan from a bank or credit union offering rates that are among the lowest available. It’s essential to keep in mind, while you work to improve your credit and credit score, that each aspect contributes to the total.

I have a few more ideas for you to consider. Credit scoring is like the secret recipe for Kentucky Fried Chicken; no one can say with certainty what effect a specific action will have on a person’s score. A credit score is a three-digit figure representing how likely you will repay the loan or credit card you request. This number results from a complex set of well-guarded and highly sophisticated algorithms. Talking to a lender who can point you in the right direction while you work to raise your credit score is a good idea. Many businesses can help you improve your credit score for a fee. You should proceed with extreme caution because there are no assurances with these services, they are usually rather pricey, and many are outright scams.

Finally, if you plan to use credit services or buy a home soon, you should prioritize monitoring and improving your credit score.

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