When you are looking to buy a home in San Francisco, the first step in the process should be evaluating your finances to determine just how much house can I afford? If you haven’t always had a clean payment history or have significant debt, you may be asking how to improve your credit score. Because a credit score is extremely important to lenders, this is an area for immediate attention. Credit scores affect lending rates, the amount you are eligible for, and often the payment terms. With a low score, you will be at a disadvantage when looking to secure funds for a new Noe Valley or Glen Park home — or any other San Francisco luxury real estate.
While there are many prospects when considering San Francisco homes for sale, the reality of the situation is that the cost of living in California is high and the better your credit, the higher budget you will most likely have to work with. When consulting with a real estate agent, like myself, we will try to get you the most for your max allowance in terms of a price point, but you need to be certain that you will be approved for the needed funds. There are a few things you can do to improve your overall credit score before looking to buy a home in San Francisco.
Avoid Late Payments
Your overall score is determined by several areas, but the history of how you pay your bills is the most significant impacting factor. Your bill payment history is equal to about 35% of your total credit score. Making monthly payments for outstanding debt on or before the due date will do a lot to increase your score.
Check Your Credit Score
There are several sites that offer free credit score reporting, and by staying on top of the activity, you will know how to address any problems. This can keep your score from developing errors.
Correct Errors in Reporting
If your score has dropped, look at the different areas and find out why. You can sometimes contact your company and ask them to remove reported late payments. You can even open disputes on items that are incorrect.
Reduce Your Level of Debt
The second-largest area making up your credit score is the debt ratio. This is equal to about 30% of your score and takes several factors into consideration. This will look at the number of open accounts you have and the amounts that have been utilized for each account. The rule of thumb is to keep your credit accounts 30% or below the available limit.
Keep a Strong Credit History
As the saying goes, there are many things that improve with age, and your credit score is one of those things. The longer your accounts remain open and in good standing, the higher your score will go. It is hard to keep something on your history, such as a car or house that has been paid off, but some of your revolving credit accounts can be of help to your financial situation. This category determines approximately 15% of your total score.
Balance Your Types of Credit
Install loans and revolving credit are the two types of accounts reported. By having both loan types on your credit, it displays a sense of familiarity with the lending and payment process. This improves your score and establishes credibility for lenders.
Reduce Credit Inquiries
Every time you open a new account or apply for financing, it puts a mark on your credit score. These marks will drive down your score. It is suggested to only make an inquiry once every six months or so.
Use a Personal Loan
If you are looking for a quick way for how to improve your credit score, getting a personal, secured loan might be the answer. With a lump-sum loan, you can pay off higher-interest debt accounts and manage payments. This still leaves you with credit history but allows you to remove negatively impacting accounts.
By improving your credit score, you become desirable to lenders. Not only will they provide a favorable loan rate, you will have increased access to higher limits and offers. This extension of funds will go a long way in ensuring you are able to purchase the San Francisco home of your dreams. If you’d like to discuss your options in the Bay area real estate market, please feel free to contact me!