Your credit score is an important factor when you want to get a home loan. The higher your scores, the more likely you are to qualify for a home loan at the most favorable terms.

If your credit score is not where you want it to be, you are not alone. While improving your credit scores takes time, the sooner you address the issues, the faster your credit scores will go up.

1 – Pay Your Bills on Time

Your past payment history is a good predictor of your likely to pay your bills on time in the future. Lenders want to know whether of not you will pay and if you will pay on time.

You can improve your credit score by paying all of your bills on time as agreed every month. Paying late or making a payment for less than what you originally agreed to pay can negatively affect your credit score.

2 – Pay off Debt

Anything owed to someone else is considered debt, and that includes student loans and car loans. Ongoing bills, like electricity, water and utilities, aren’t considered debt. Those are just variable monthly expenses. The same goes for things like insurance, taxes, groceries and childcare costs. 

While paying off debt is never easy, decreasing the amount of debt that you have will help you to qualify for a home loan.

3 – Keep Balances Low on Credit Cards and other Revolving Credit

There is a credit utilization ratio that is an important number in credit score calculations. It is calculated by adding all your credit card balances at any given time and dividing that amount by your total credit limit. For example, if you typically charge about $2,000 each month and your total credit limit across all your cards is $10,000, your utilization ratio is 20%.

To figure out your average credit utilization ratio, look at all your credit card statements from the last 12 months. Add the statement balances for each month across all your cards and divide by 12. That’s how much credit you use on average each month.

Lenders typically like to see low ratios of 30% or less, and people with the best credit scores often have very low credit utilization ratios. A low credit utilization ratio tells lenders you haven’t maxed out your credit cards and likely know how to manage credit well.