Buying or Refinancing in 2023? Use These Tips to Keep Your Credit Score Healthy

If you’re considering buying a home or refinancing your mortgage in the new year, then the desire to keep your credit score healthy should be top of mind.

Not only will your credit play a prime role in your ability to qualify for a home loan, but it will also have a significant effect on your interest rate, too — not to mention your monthly payment.

It’s true: The better your credit score, the better rate you’ll usually get, and that may mean a lower payment and less in interest paid over the life of your loan.

Want to give yourself the best shot at a favorable rate and a smooth qualification process in 2023?

6 tips to keep your credit score healthy

1. Put all your bills on autopay — or at least set up payment reminders.

If you want your credit in prime condition when you apply for that loan, then you need to avoid late payments at all costs. Late payments do two things: First, they lower your credit score (not good for your application or your interest rate). Second, they signal to a lender that you’re not reliable when it comes to paying your bills. That makes you riskier and may make it harder to get a loan.

To avoid late payments, set up autopayments on any bills you can. If that’s not possible (or it just makes you leery), then set up reminders on your phone (or Google Calendar events) for each bill instead. This will ensure you remember each one, pay in a timely fashion, and keep your credit score healthy.

2. Shrink your credit utilization rate.

Your credit utilization rate — or how much of your credit lines you’re actually using — impacts your score a lot, too. The more of your credit you’re using, the lower your score will be, and vice versa.

To make sure your utilization rate is low, you have two options. The first is asking for a credit line increase. Sometimes this is as simple as hitting a button in your online credit card dashboard, or you may need to call up your credit card company or bank to request it directly. Either way, the higher your credit line, the more that utilization rate shrinks.

You can also pay down some of your balances. Reducing them even a little bit can help lower your utilization rate — not to mention reduce the amount of interest you pay on your debts.

3. Check your credit report regularly and report any errors.

One of the silver linings of the pandemic is that credit bureaus have made getting your credit report easier (and more affordable) than ever. In fact, every consumer is entitled to free, weekly credit reports from all three bureaus — Experian, TransUnion, and Equifax.

Take advantage of this, and pull your reports often to keep your credit healthy. Look over them carefully for any potential errors (accounts you don’t recognize, payments mistakenly reported as late), and alert the bureau if you spot anything amiss. These can hurt your credit score, so getting them corrected before your mortgage application is critical.

4. Keep your old accounts open — even if you pay them off.

If you manage to pay off a credit card, don’t close it out. A big portion of your credit score is actually your credit history — or how long your accounts have been open. And the longer that history? The more it helps your score.

The long and short of it? Keep your accounts open — even once they’re paid off (just steer clear of racking up those balances again). 

5. Avoid new loans and debts if you can to keep your credit score healthy.

Taking on new loans and debts hurts you in several ways. The biggest one is that it requires a hard credit inquiry. These inquiries ding your credit score, and the more inquiries you have, the riskier you look to a lender (they usually don’t want you taking on new debts just before getting a mortgage). New debts also mean a higher credit utilization rate, which — as mentioned above — hurts your score as well.

Your best bet is just to avoid opening any new accounts or applying for other loans if a mortgage is on your radar. Wait until after you’ve moved into your home or closed on your refinance to take on any additional debt. 

6. Work with your creditors if there’s a problem.

If you start having financial problems or just can’t pay your bill one month, reach out to your credit card company or lender. In many cases, these creditors will work with you to find a solution — especially during the pandemic.

The worst thing you can do is let that payment get reported as “late” to credit bureaus or, worse, let the creditor send the bill to collections. Try to head these possibilities off at all costs.

The bottom line about keeping your credit score healthy

Your credit will play a critical role in your home purchase or refinance, so make plans to safeguard it now. Need more advice on buying or refinancing a home? Get in touch with an Embrace Home Loan expert in your area today.