WHAT AFFECTS YOUR SCORE?
Many factors go into your credit score. Details can be found on your credit report and include:
Your payment history,
How much money you owe compared to available credit,
How long you’ve had credit,
The different types of credit accounts you have, and
How many new credit and loan accounts you’ve opened.
KNOW YOUR CREDIT SCORE
Purchasing a home is a big investment. MHL will consider certain factors to determine your eligibility:
Your credit score and credit history, combined with
Your income in relation to your debt obligations (also known as your debt-to-income ratio, or "DTI")
Employment history
It’s a good idea to check your credit report regularly from each major credit reporting agency—Experian, Equifax, and TransUnion, in case there are reporting errors.
As a way to monitor your credit throughout the year, you can stagger when you get your credit report from each agency. Also, many banking and credit card companies provide customers with their credit scores, free of charge.
By federal law, you can obtain a free credit report once every 12 months. Alternatively, you can get three free credit reports a year—one from each credit reporting agency via the Fair Credit Reporting Act (FCRA) website annualcreditreport.com.
WHERE TO BEGIN
First, make sure there are no errors on your credit report. Double check that accounts listed, and your payment history are accurate. Pay close attention to any late payments, charge-offs, collections, or closed accounts. Creditors will report these on your credit report quickly but can at times be slow to report when you’ve satisfied past-due obligations.
Making sure these are accurately reflected can boost your credit score.
FIXING REPORTING ISSUES
Before you get into improving your credit score, it’s important to make sure there are no errors on your credit report. If you do find errors, contact each agency separately and let them know in writing that the information is inaccurate along with proof of why it’s inaccurate. Then, reach out to the company that misreported the information and do the same.
PAY BILLS ON TIME
One of the biggest contributors to your credit score is on-time payments.
Late payments typically start getting reported to credit reporting agencies when payments are 30 to 90+ days past due. To avoid late payments, set up payments so they are automatically deducted from your bank account when they’re due.
If you’re thinking of buying a home and are concerned that your credit score is too low, you can take steps to improve it. Note that it takes time for some changes to impact your credit score, so plan, and get started.
PAY DOWN DEBT
Paying off debt, especially credit card debt, can make a big difference in your credit score. It’ll increase your available credit and help lower your debt-to-income ratio. There are different ways to go about paying off debt, like paying more than the minimum monthly payment, reducing or halting credit card spending, creating a budget, using only cash to make purchases, and paying off your most expensive debt first. These are just some suggestions. Be sure to do your research to find the approach that works best for you. You can also check with a housing counselor who can help guide you with personalized recommendations based on your goals.
AVOID OPENING NEW ACCOUNTS
If you’re trying to improve your credit score, avoid opening new credit card accounts. This can negatively impact your score for many reasons, including the risk of taking on more debt and lowering your average account age. It also increases the number of inquiries to your credit report, which can affect your score.
With that said, do NOT close accounts you already have open. These existing lines of credit can help with factors like average account age (the older the better) and how much available credit you have.