How to optimize your portfolio and credit score ahead of applying for a mortgage
Applying for a loan is equal parts thrilling and stressful. You're faced with the exciting prospect of moving into your dream home, but have to first apply and wait to see if you qualify for a loan. One of the best ways to beat these nerves and streamline the process is by actively improving your chances to receive a loan ahead of applying for a mortgage.
Increasing your credit score is one way to achieve this, and it's easier than you might think. If you want to optimize your portfolio and credit store before applying for a mortgage, here is everything you should know.
How are credit scores calculated?
The best way to improve your credit score is to understand how it's calculated. While it's difficult to pinpoint exactly how your credit score is formulated, the experts at Business Insider estimate how five factors weigh into it:
- Payment history - 35%
- Current debt balances - 30%
- Length of credit history - 15%
- New credit - 10%
- Credit mix - 10%
As you can see, payment history and current debt balances make up more than half of your credit score. This doesn't mean you should solely focus on improving these factors, but it can help you prioritize your actions.
4 easy ways to improve your credit score
1. Make your payments on time
Lenders want to know how reliable you are in paying your bills. That's why your payment history is weighed so heavily in your overall credit score. Since past payment performance is usually considered a predictor of future behavior, Experian recommends paying all your bills on time every month to positively influence your credit score.
This also means, at the very least, paying the minimum monthly requirement for your lines of credit. Making your payments in full, or more than once a month is also a good way to improve your credit. A late or missed payment will be flagged on your credit report for seven years, but how it impacts your credit score decreases over time.
Take advantage of useful tools like automatic payments and text reminders for your credit card bills, loans, rent and utilities. If you can, try to pay off charges as soon as they appear so you don't forget.
2. Improve your credit utilization
When it comes to tackling your debt, Forbes explains that most credit reporting agencies don't have your income information, but instead use a factor called credit utilization. This is the most important factor of your credit score after payment history and represents the amount of debt outstanding on your credit sources. This could mean anything from credit card debt to unpaid dues on home equity lines attached to your credit.
In Forbes' example, if you have a $4,000 balance on a credit card with a $10,000 limit, you have a 40% utilization ratio. It's recommended to keep this score below 30%, but bringing it below 10% can significantly improve your credit score.
Some tips for improving your credit utilization include:
- Paying down credit card debt starting with accounts that are close to their limit.
- Request an increase on your credit line if you are eligible.
- Pay off more than the monthly requirement, or pay more than once a month.
3. Don't close unused accounts
It's important to avoid making any drastic changes to your credit in the months leading up to applying for a loan. Debt.org recommends keeping unused accounts around, especially if there is no annual fee involved. Since the length of your credit history matters, keep mature accounts active, and if you need to close a credit account, close a newer one.
This also goes for opening new credit accounts. While it may increase your total credit limit and help offset your credit utilization score, it hurts your score if you apply or open several new accounts in a short amount of time.
4. Diversify your accounts
According to Credit.com, consumers with the strongest credit scores have a mix of different types of accounts. This means having a mix of revolving accounts, like credit cards and home equity lines of credit, and installment accounts like loans. Revolving accounts will have different payments each month depending on your spending, but an installment account has a predictable monthly payment.
The key to diversifying your accounts is to manage them responsibly. You still need to make sure you are not closing and opening accounts in quick succession, and most importantly, are able to make all your payments on time. A good rule of thumb for credit cards specifically is that you shouldn't make a purchase that you cannot pay off immediately (in full) if needed.
Applying for a loan is simple with InterContinental Capital Group
Dustin DiMisa, CEO of InterContinental Capital Group, made it his mission to streamline the home loan process while keeping the criteria for applying transparent. At InterContinental Capital Group, lenders evaluate the 3 C's of your application: Credit, Capacity and Collateral.
You can take active steps towards improving these three key components before applying to increase your chances of receiving one of the many loans available for first-time or mature homebuyers from ICG.
We can provide home loans without taking collateral beyond the property that needs financing. Part of streamlining the home loan process is being transparent about eligibility requirements. As long as you are a U.S. citizen or permanent resident over 21 years of age and have a steady source of income, you can be considered eligible for a home loan with ICG.
After applying for a loan, ICG pairs you with a mortgage specialist licensed in your state to assist you with all local regulations and policies. Our pioneering approach utilizes digital tools and technological advantages to further help optimize the process and keep you informed with updates along the way.
If you want to learn more about InterContinental Capital Group and how to improve your credit score, don't hesitate to reach out to one of the helpful representatives at ICG today. With licensed mortgage experts in nearly every state and a diverse selection of loan options, we can assist you in finding the right home loan for your current and future needs.