How to Qualify For Major Purchases
Preparing your credit before a major purchase can make a significant difference in the financing options available to you. Whether you’re planning to buy a home, finance a vehicle, or make another large purchase, lenders will review your overall credit profile—not just the number you see as your credit score.
The best time to prepare is before you apply. Reviewing your credit reports, lowering credit card balances, making every payment on time, and avoiding unnecessary new credit applications can put you in a stronger position when it’s time for a lender to evaluate your application.
What Lenders Look at Before Approving You
When you apply for financing, lenders may consider several factors when deciding whether to approve your application and what terms to offer:
• Payment History — Consistently paying your bills on time is an important part of maintaining a strong credit profile.
• Credit Card Balances — High balances compared with your available credit limits can affect your credit scores and may concern lenders. Paying revolving balances down before applying can help strengthen your profile.
• Credit History — Lenders may consider the age and history of your accounts, including how long you have successfully managed credit.
• Recent Credit Applications — Applying for several new accounts within a short period can result in multiple hard inquiries and may affect how lenders evaluate your application.
• Debt and Income — For many types of financing, lenders consider your existing monthly debt obligations in relation to your income.
• The Entire Credit Report — A lender may review accounts, late payments, collections, charge-offs, public records, and other information appearing on your credit reports—not simply your credit score.
Before You Apply: What to Do First
Give yourself time to prepare before submitting a major credit application. Consider taking these steps first:
1. Review all three credit reports.
Check your Equifax, Experian, and TransUnion reports for inaccurate information, unfamiliar accounts, incorrect balances, or other items that may need attention.
2. Make every payment on time.
Avoid new late payments while preparing for a major purchase. Setting reminders or automatic payments can help.
3. Pay down revolving credit card balances.
Lower balances generally mean lower credit utilization. Avoid running balances back up before or during the application process.
4. Avoid unnecessary new credit.
Opening accounts or applying for several credit products shortly before a major purchase can add inquiries and new accounts to your credit profile.
5. Don’t automatically close older credit cards after paying them off.
Closing a card can reduce your total available revolving credit and may affect utilization. Consider your individual circumstances before closing an account.
6. Keep your finances stable.
For major financing—especially a mortgage—avoid making significant financial changes without first discussing them with your lender.
7. Save for more than the purchase itself.
Depending on what you’re buying, you may need funds for a down payment, closing costs, taxes, insurance, registration, repairs, or other expenses.
Why Credit Utilization Matters
Credit utilization is the percentage of your available revolving credit that you are currently using. For example, if a credit card has a $5,000 limit and a $1,000 reported balance, that card has 20% utilization.
Lower utilization can generally be better for your credit scores. There is no single utilization percentage that guarantees a particular score, and you do not need to carry a balance or pay interest to build credit.
Timing also matters. Credit card issuers typically report account information periodically, often around the end of a billing cycle. Paying a balance down before it is reported may allow a lower balance to appear on your credit reports when a lender reviews them.
Before a major credit application, focus on reducing revolving balances while continuing to make every payment on time. Avoid charging the cards back up while you’re preparing to apply.
What Not to Do Before a Major Purchase
When you are preparing to apply for major financing, avoid making changes that could unnecessarily affect your credit profile or finances:
• Don’t apply for several new credit cards or loans.
Multiple new applications can result in hard inquiries and new accounts appearing on your credit reports.
• Don’t make large purchases on your credit cards.
A sudden increase in revolving balances can raise your credit utilization and change the credit profile a lender sees.
• Don’t close credit cards simply because you paid them off.
Closing an account can reduce your available revolving credit and may increase your overall utilization.
• Don’t miss a payment—even by accident.
Continue making every payment on time while you are preparing for financing and throughout the approval process.
• Don’t co-sign for someone else without considering the consequences.
A co-signed debt may become part of your financial obligations and can affect your ability to qualify for financing of your own.
• Don’t make major financial changes during a mortgage approval without talking to your lender first.
Before changing jobs, taking on new debt, financing furniture or appliances, moving large amounts of money between accounts, or making another significant financial change, ask your mortgage professional whether it could affect your approval or documentation requirements.
• Don’t assume your approval is final until the transaction is complete.
For some types of financing, particularly mortgages, your credit or financial information may be reviewed again before closing.
Planning a Major Purchase? Prepare Your Credit First
Whether you’re preparing to buy a home, finance a vehicle, or make another major purchase, planning ahead can make a difference. Credit Help USA can help you review your credit reports, identify areas that may need attention, and develop a personalized plan to help you put your strongest credit profile forward before you apply.
