How to boost your credit for new home-buyer loans
If you’re hoping to join the Federal Housing Administration’s Back to Work program for the best home mortgage loans, satisfactory credit is required to be eligible. This means your credit history must be clear of late housing, installment debt payments, delinquency and other derogatory credit issues.
What is a credit score?
A credit score is a number ranging from 300 to 850 that shows your potential and financial worthiness to potential lenders, landlords, insurance companies and banks. The score is determined by your payment history, amount of debt, length of credit history, recently opened accounts, utilization of credit and available credit. Payment history makes up 32 percent of an overall score, which is the largest portion and most important.
The higher the score, the more creditworthy you are. This shows lenders you have a higher chance of repaying your loans on time. There are two different kinds of credit: revolving (credit cards) and installment (student loans, auto and mortgages). Both kinds contribute to your overall score. Credit scores below 500 are not eligible for Back to Work’s new home-buyer loans. Borrowers with no credit score remain eligible.
How do I raise my credit score?
Making payments on time is the biggest contributing factor to a credit score. The longer you pay your bills on time, the more your score will increase. If you pay bills online, set up payment reminders with your bank that will automatically send you a text message or e-mail alert to remind you of your bills’ due dates. If you owe a bill that is consistently the same amount each month, set up an automatic payment. Your personal banker can help you set up reminders and automatic payments if you are unfamiliar with online banking.
If you haven’t already had a successful installment loan, like a student loan, consider taking out a small loan from a community bank that you are positive you can pay back over time. This can dramatically increase your credit score and prove your creditworthiness.
Paying off credit cards is easier said than done, but it’s another huge contributing factor to credit scores. To begin, pay down cards that are closer to their limits first. Lenders like to see balances below 10 percent of the card’s limit. Just like with bill reminders, you can set up e-mail or text message reminders that will alert you when you’re approaching the limit you have set.
The Back to Work program requires at least twelve months of a clear credit-history report. There is no quick fix to bad credit, but paying monthly bills and paying off cards will boost your credit score over time, and get you back into home-buying shape.