As you start to get older, building wealth should be one of your main priorities. There are a number of things you can do to make your dream of building wealth a reality. Buying a home is probably one of the best investments you can make. If you want to become a homeowner, then you will have to secure a home loan.
The mortgage loan approval process can be very lengthy. One of the main things you need to buy a home is good credit. Unfortunately, over 16 percent of American consumers have poor credit scores. If your existing credit score is low, then now is the time to devise a plan for improving it.
Read below for some tips on how to boost your credit score and secure the loan you need to purchase a home.
Start By Dealing With Collections Accounts
When a consumer falls behind on payments to a creditor or lender, it is only a matter of time before collections accounts surface on their credit reports. If a lender is unable to get payment from their customer, they will sell this debt for a fraction of the total amount to a collection agency. Once a collection agency has this new account in their system, they will file it with major credit reporting agencies.
Having collection accounts on your credit report can lower your credit score drastically. Before you attempt to apply for a loan, you need to get detailed information about the collection accounts on your credit report. After you’ve compiled a list of these collections, you need to start the process of paying them off.
You need to realize that collections are going to negatively impact your credit score. This is why you need to either pay them off or dispute any accounts that aren’t valid. While this will take some time and effort, it is definitely worth it due to the positive impact removing these accounts can have on your overall credit score.
Develop a Plan For Paying Down Credit Card Balances
The average American consumer has over $6,000 worth of credit card debt. Lenders will look at the amount of credit card debt you have before approving your loan. If your debt-to-income ratio is too high, it can prevent you from getting approved for a loan. By checking your credit report, you can get a fair assessment of just how much credit card debt you have. Making a strategic plan to pay off this debt is crucial when trying to improve your chances of getting approved for a loan.
Ideally, you want to pay off cards that are currently over 30 percent of their total limit. People with the highest credit scores use less than 7 percent of their credit card limits. You also need to focus on paying off the credit cards with the highest interest rate.
By doing this, you can save money in the long run. Developing a detailed budget and using any overages you have to pay off your credit card debt is a wise move. Being committed to paying off this debt can help you boost your credit score and make yourself more desirable to lenders.
Remove Errors From Your Credit Report
Taking a good look at your credit report is a great way to discover errors. If there are collection accounts for debts that you aren’t responsible for, it could affect your credit score in a negative way. Making a list of these errors is the first step in this process. The next step is reporting these errors to the major credit reporting agencies.
You also need to reach out to the company that has made this error in an attempt to address this issue. In some cases, the company will see that an error has been made on their end and will fix it. Constantly monitoring your credit report is vital when trying to discover and fix these errors. Having these errors removed from your credit reports can help you increase your overall credit score substantially.
Higher Credit Card Limits Can Come In Handy
High credit card utilization can also bring down your credit score. While paying down the balances on these cards is helpful, you also need to seek out higher credit limits. If you’ve been a loyal customer who has made their payments on time, a credit card company might reward this loyalty with a higher credit limit.
Most credit card companies will allow you to apply for a higher credit limit on their website. If you are successful in getting your credit card limits increased, it will automatically lower your credit card utilization average. This will also improve your chances of getting approved for a loan.
Paying Your Bills On Time Is Important
One of the main things that can thwart your attempts to improve your credit score is being late with bill payments. When these late payments occur, lenders will report them to major credit reporting agencies. If you have a number of late payments on your credit report, it can make you look unreliable in the eyes of a new lender.
This is why you have to work hard to stay organized and pay your bills on time. Using a digital calendar that provides you with the bill due dates is a great way to put problems with late payments behind you.
By using these great tips, you can improve your credit score and get approved for a loan.