4 Ways to Prepare Your Credit Before a Real Estate Transaction

Sunday, February 16, 2020, 6:00 AM | Leave Comment

Real estate transactions are usually the largest purchase an individual will make in their entire life.

Credit scores play a large factor in not only being approved for a loan but in the amount of interest, you will be required to pay over time.

A higher credit score can save you thousands of dollars in interest of the course of a typical 30 year mortgage.

Luckily, there are simple steps you can take to prepare your credit for a real estate transaction.

4 Ways to Prepare Your Credit Before a Real Estate Transaction

  1. Limit Inquiries

    A high number of credit inquiries raise red flags for many lenders. Also, a single credit inquiry can diminish your credit score. Multiple credit inquiries within a short period can have an even worse impact on your credit score. Most credit inquiries will remain on a credit report for up to two years, while the score impact typically diminishes after one year.

    When preparing your credit for a real estate transaction it is advisable to refrain from new credit inquiries up to a year before your purchase.

  2. Maintain a Positive Payment History

    Maintaining a positive payment history is perhaps the best way to prepare your credit before buying a home or piece of property. On-time payments made consistently show lenders financial responsibility. Furthermore, payment history has a significant impact on an overall credit score.

    Keeping a budget, knowing monthly bill due dates, and recording payments made can all contribute to keeping an impeccable payment history. With an on track payment history, a loan for desirable new homes or new construction homes will be much easier to obtain from a lender.

  3. Avoid Taking on New Debt

    The amount of debt you owe not only impacts your credit score but also how much house you are approved for. Lenders use a calculation referred to as a debt to income ratio in deciding how much you will be preapproved for when home shopping. If you take on more debt, this may lower your approval amount.

    Furthermore, taking on new debt via credit cards can have an instant and significant impact on your credit score. To improve your credit, consider not only refraining from new loans but also paying down current credit card balances.

  4. Resolve Collections on Report

    When an amount owed goes to collections it has negative consequences for your credit score. A collection account may stay on your credit report for up to seven years. However, if you resolve the debt with the collection agency this can improve your overall credit profile.

    Speak with the collection agency directly to understand how much you owe, why it is owed, and the date you incurred the debt. Many collection agencies will allow you to settle the debt in payments or settle for a lesser amount. This can improve your credit health and show lenders your level of responsibility with finances.

Before applying for a real estate loan consider the tips listed above. Due diligence in following these steps can make the difference between buying the home of your dreams or forcing to settle. Although it feels overwhelming, credit health does not have to be complicated. As long as you remain dedicated and focused, anyone can improve their credit before a real estate transaction.

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