When your credit score is less than ideal, it can feel like you are fighting a losing battle. This is magnified when you are on the hunt for a conventional mortgage. For those who are tired of paying rent every month without building any equity, any obstacle between them and homeownership can feel insurmountable. If poor credit has been holding you back, don’t despair. There are options available to help you acquire a mortgage even if your credit isn’t pristine.
Here at Patriot Home Mortgage, we are passionate about helping those who are seeking a better home mortgage interest rate or those who simply need some help acquiring a conventional mortgage. We are here to assist you in the process, no matter what credit score you bring to the table. One way that you can make your chances at acquiring a conventional mortgage better is to spend some time focusing on improving your credit score. Even a small bump up in your credit could make a huge difference in the conditions of your loan and the interest rate you are offered.
Check out the following tips for improving your credit score and reach out to our team for help as you shop for a conventional mortgage.
Take Time To Analyze Your Debt
The first thing you should do when you are facing a poor credit score is to take time to analyze any existing debt. Odds are good that if your credit score is low, it is in part due to the amount you owe on credit cards and other debts. When you have a large amount of debt, it is important to take time look through everything you owe and to find out all the details about each debt.
For example, as you put together a list of everything you owe, make sure you take note of interest rates on each debt, as well as the terms and conditions of the debt. Different debts will affect your credit in different ways, which is why it important to determine how much you owe of each type of debt and what path you can take to pay this debt off.
Create A Better Percentage
As you determine exactly what money you owe, focus on creating a better debt to credit ratio. The percentage of your credit that are utilizing plays a huge role in your credit score. For example, if you have three credit cards and they are all maxed out, you are utilizing 100 percent of your available credit. This will lower your credit score significantly. Conversely, if you had three credit cards and only one was maxed out but the other two had wide open credit limits, your percentage would be better and your credit score would improve.
For this reason, it is important to consider ways in which you can pay down existing debt prior to taking on any more debt. The more available credit you have that isn’t being used, the better.
Put Together A Better System For Due Dates
In some cases, your credit has taken a dump due to missed or late payments. If you struggle to pay your bills on time, which has resulted in a lowered credit score, put together a better system for remembering due dates. Whether you set up auto payment or you create calendar reminders that alert you to make payments early, make sure you have a system in place that prevents you from missing important due dates.
Focus On Tightening Your Budget
When you start down the vicious cycle of falling behind on debt, it can be hard to ever dig yourself back out. This is usually due in part to poor budgeting. Before you commit to a monthly mortgage payment, it is critical that you learn how to better balance your budget.
Start by looking for obvious areas where you could cut down on spending. For example, do you go out to eat multiple times a week? Focus on meal prepping instead. Purchasing food from the grocery store is far more economical than buying meals on the go. You can also spend some time diving into monthly bills. Are they all necessary? Could you do without specific services? Take time to tighten your budget and focus on paying off debt to improve your credit.
Tackle Revolving Credit First
When it comes to your credit score, there is a differentiation between types of debt. Revolving credit refers to a credit line that is automatically renewed after you pay the debt off. A common example of revolving credit is your credit card. Once you pay off a credit card, you get that credit line back right away. Revolving credit also differs from installment loans in that you can utilize it more flexibly. For example, if you need to buy a car, you might take out an auto loan. This loan will have a set number of installment payments you will make to pay it off. Once you finish, the loan is closed out. Conversely, a credit card can be used whenever you want for whatever you like. Each month, any amount you don’t pay off rolls over and you pay interest on it. However, you could pay off the entire debt at once should you choose to do so.
The reason why you should tackle revolving credit first is that it can take a much bigger toll on your credit. For one, as mentioned above, the percentage of available credit you have versus how much you have used determines a major part of your credit score. Another reason is that one missed payment on revolving credit could wind up penalizing your credit score up to 100 points. That can result in a huge plummet for your credit score.
Put Away Credit Cards Rather Than Closing Them
Finally, if credit cards are causing you issues and resulting in overspending, put them away in your safe rather than closing the credit line down. This again is due to the fact that the higher the percentage of available credit you have, the better your score will be. Closing out a credit card can actually damage your credit.
If you are struggling with less than ideal credit, spend some time focusing on these tips. You can also reach out to our team to learn more about what conventional mortgages are available to you. We work with people who have less than ideal credit, so don’t hesitate to talk to us about your needs.