Many home buyers enter the process of buying their first home and they don’t understand credit or how it works. They may not have the best credit score now, but they don’t understand how using a secured credit card can help or how their credit score is figured out.
Maybe you’ve already tried to find your first home and you were rejected for the mortgage. Did you simply give up and decide you’re a lifelong renter? You don’t have to rent forever.
Even if you’ve been rejected for a mortgage, you can still buy a home, with a little patience and diligence. There are easy ways to rebuild your credit and the top solution includes getting credit cards and using them properly to build your credit score back up.
What Type of Credit Score do You Need to Get a Mortgage
While some lenders will consider a score as low as 580, you really need a credit score around 640 to be approved for a good mortgage. When you reach this credit score level, you will have many loan options available to you. This includes options requiring no money down or down payments as low as 3% of the purchase price.
3 Quick Tips for Rebuilding Your Credit
If you’ve been rejected for a mortgage, it’s not time to throw in the towel. It’s time to rebuild your credit so that you can be approved. There are a few great ways to do this including these three tips.
Pay off Debts
The first thing you can do to help rebuild your credit is pay off debts. If you have small debts you’ve gone delinquent on, get them paid off. This will help to build your score back up.
If possible, paying off larger debts will also help, but do the best you can with this tip as it will help, but it’s not going to boost your score as much as the other two tips will.
Pay Down Credit Cards
Those with unsecured credit cards with high balances need to pay those balances down. When the balance is higher than 25% of your limit, it actually hurts your credit more than it helps. This means, if you have a $1,000 credit limit and you carry a balance over $250, you’re doing more harm than good.
Pay down these balances to less than 25% and watch your credit score start to rise. It’s best to pay off your credit cards every month, but if this isn’t possible, get as many cards as you can below 25% of the credit limit.
Use a Secured Credit Card to Rebuild Credit
Getting a secured credit card is rather easy. Most banks will offer a secured credit card with a deposit of just a few hundred dollars. All you have to do is use the care normally and responsibly to increase your credit score.
Choosing to get a secured credit card and using it properly will help rebuild your credit. It can boost your credit score by as much as 50 to 100 points.
Use these three tips to help rebuild your credit and you won’t get rejected for a mortgage the next time around. Before you start shopping for a home, again, check your credit score. If it’s not 640 or higher, keep working on improving your credit and have patience.