3 Credit Secrets That Will Help You Qualify for Your Dream Home

Regardless of whether we will be in a buyers or sellers market, interest rates are expected to increase in the near term. Armed with this information, you can decide whether it’s better to pay a little more than your asking price now or pay a higher interest rate over time (keep in mind that you can always refinance in the future for a lower rate if the option works). well) .

Meanwhile, there are some unreported credit steps that will help you qualify for a loan and make those New Year’s resolutions come true, no matter how much money you have in the bank.

1. Avoid credit mistakes

Mistakes that are common when consumers are about to buy a house are paying off the account in full, closing or using a credit card unwisely and opening a new account.

It might seem logical to think that paying off the entire account is always a good thing; the fact is that sometimes, and sometimes not. When you pay off an installment account in full, it will be closed, which hurts your credit score because the age of the account is no longer reflected on your credit profile. Also keep in mind that closed accounts are worth less than open ones. So when buying a home, the secret is to pay off most of the mortgage loans but leave it open. In most cases, a 90/10 ratio is good (as long as it fits within your budget), meaning 90% of the account has been paid off, with 10% of the open balance. This reduces your debt-to-income ratio and will improve your credit score.

Now that we know closing accounts is a bad idea, we want to do the same with credit cards; pay them as low as possible but leave them open (you can also use the same 90/10 ratio for this). Also, if you have bills or monthly memberships linked to your credit card, it might be a good idea to disconnect them until you’ve completed escrow. That way, there will be no balance on the card that you might forget. (If that balance is reported, it will hurt your debt-to-income ratio.)

2. Use other/additional credits

If you live with your spouse or family member (i.e., brother, sister, son, cousin) over the age of 18, you can use their credit profile under the terms of the tenancy in common (TIC) law. where each tenant owns a percentage of the property. The advantage is that if all tenants are employed, any of their income (as well as credit scores) can be included in the loan application. The downside is that lenders will usually use the lowest credit profile of all tenants, but there is a workaround for this, leading to our next and final credit secret.

3. Piggybacking

Adding authorized users (relatives, friends or family members) of a credit card, aka “piggybacking”, can be a reliable way to increase your credit score. For example, when a mother adds her daughter to a card, that credit history (including card age and credit limit) will appear on her daughter’s credit report. The secret is to get a card of sufficient age as well as a card with a high credit limit. It is also important that there are no missed payments associated with the card, and that it is paid for under 10% of total usage (the lower the better).

Authorized user accounts will typically appear on credit profiles five to 10 days after the credit card-related statement date, so that’s when improvements to credit reports will be visible.

In the illustration used above, a consumer with a high credit score could each add a third consumer with a low credit score to their credit card, which would eventually increase the score. (The more cards you use, the better!) This will certainly increase the chances of a profitable outcome in pursuing a home purchase.

Keep in mind that once a mortgage is reported on your credit report, your credit will be taken to a higher credit class, because the algorithm for having a good profile includes owning a mortgage. Furthermore, lenders can now see that you have a stable residence, and realize that most property owners get escrow on their homes, which makes consumers more attractive to lenders — a win-win situation.