How to increase your credit quickly for big purchases

When it comes time to purchase a home, it is important to have a credit limit and score to be able to make the purchase that meets (and fits) your wants and needs. Whether it is buying a home, an investment property, a vehicle, etc., it is important to understand how lenders view creditworthiness.

 

#1. Character: Character refers to your actual credit history. This includes your education history, business background, and personal finances. This component can even include references, and other information pertinent to your financial history.

 

#2. Capital: Capital refers to your individual “stake” or assets involved in your purchase. To get a line of credit, you will need to show that you have capital that you can put toward your investment.

 

#3. Collateral: Collateral refers to your history of loan and payment history. If you fall behind on your loan payments, financial institutions want to ensure you have collateral, or, some other source of repayment for the loan they will offer you. 

 

#4. Capacity: Capacity is your ability to repay a loan. Lenders look at your credit history, revenue (income), expenses, cash flow, and repayment timing to determine your personal credit history, as things such as debt-to-income ratio (“DTI”).

 

#5. Conditions: Conditions refer to the overall market and appetite for whatever you may be purchasing. Lenders (financial institutions) want to know that there is a market for your “business” and that they are, in some way, guaranteed a return on their investment. Make sure your loan application factors in economic conditions, competition, industry type, and your history as a buyer. 

 

Before getting into the actual preparation of a big purchase, make sure you have considered and completed the following items to get your credit score ready for your big purchase.

 

Review and Monitor your Credit Report

Once you have decided to make a large purchase, it is important to obtain a copy of your credit report, so that you can understand your credit position and identify (and potentially mitigate) any inaccuracies in your report. 

 

Pay Down Balances

Your debt-to-income ratio is a critical metric that all major credit lenders will factor into your loan. Maintaining a low credit utilization is a factor attributable to your credit score. Your overall credit utilization is an overall factor in the probability of your loan approval and can factor into your interest rate if/when you are approved for a loan.

 

All in all, having good credit can save you thousands of dollars on large purchases, and building, and maintaining a good credit score is worth your while. Taking into account the information outlined above can ensure you receive a decent interest rate on your next large purchase.