Potential home buyers will find that their credit score starts to get a lot of attention as they start looking to buy a home. Lenders use this number as a way to figure out what loans and interest rates home buyers will qualify for. While the best way to have good credit is to maintain it from the beginning of your credit history, that is not always possible. Mistakes, unexpected financial burdens, and other surprises can bring your credit score down. Luckily there are ways to improve your score if it is less than satisfactory.
Because credit scores are based on credit history, dramatically improving your credit takes time. That said, there are ways to see immediate results. If your credit score is low and your want to improve it both sooner and later, follow these 9 tips to improve your credit score.
1. Improve your credit utilization ratio.
Credit utilization ratio is the percentage you are using of your available credit and has a major impact on your credit score. When you using a high percentage of your available credit you become a high risk for lenders. Improve your credit score by either paying off the card with the highest credit utilization ratio or by calling your credit card company and asking for an increase in your credit limit. If you have two cards, one with a limit of $4,000 and balance of $1,200 and the second with a limit of $1,200 and a balance of $800, it will improve your credit most to pay the second card or to have the limit increased. This will show up in your credit history as you using less of your available credit.
2. Reduce your debt.
Paying debt off in full is usually not an option. But, with a little savvy saving, you can put more of your monthly income toward paying of the debt quicker. Reducing the amount you owe will go a long way toward improving your credit score. A mistake many people make is shifting their debt around to different credit cards. This usually has the opposite of the desired effect and lowers your credit score. Leave the debt where it is and work on making larger payments.
3. Keep using your credit card.
Keeping your credit card active by using it periodically will show that you are able to manage your credit responsibly. Not using it all doesn’t show anything and so does nothing to improve your score. If you can manage your spending, use your credit card for purchases and make monthly payments. This will show that you can responsibly make payments, and it will improve your credit score. Make sure you don’t use too much of your available credit! That will negatively impact your credit score.
4. Do not get more credit cards (unless you don’t have any).
Every time you get a new credit card, your score is lowered. The only time you should get a credit card to improve your credit is if you don’t already have one. This will give you an opportunity to build your credit instead of letting it happen or not having any at all. Lenders are more likely to trust an applicant that has shown they can manage credit, not one who has many different credit cards.
5. Check for mistakes in your reported credit history
Mistakes are common in credit history reports. Legally, you are allowed one free credit report every 12 months. Review your credit history and highlight any mistakes. Look for accurate credit limits on cards and check to make sure all your payments are shown correctly. If you find a mistake, dispute it. You can have this mistakes fixed to improve your score dramatically. Filing a dispute can be confusing, check out this guide for disputing errors on your credit report from the Federal Trade Commission to help make it easy.
6. Pay bills on time
The timely payment of bills is a key part of having a healthy credit score. If you are delinquent on any payments, get up to speed and stay there. This part of your credit history is the most important to lenders because it shows your relationship with payments. If you haven’t been able to make payments on time in the past, what will be different about their loan? Luckily, your credit score relies more heavily on more recent credit history than mistakes in the past. If you struggle with making payments on time, set up automatic payments or start a payment reminder for each bill.
7. Add missing accounts to your credit history
Utility companies are not required to report your payment history to the credit bureaus so if you want them included and you don’t see them in your credit history, call each company and request they report your payment history. Remember, they are not required to report them so ask nicely for this favor. These timely payments will improve your score. If you have a history of late payments with any of these companies, DO NOT request they report your payments. Your credit score will be negatively affected.
8. Do not close payed off credit cards
A long credit history is great for your credit. Even if you have weak credit, a longer history improves the strength of your score. Closing credit accounts does nothing to improve your credit score. Actually, it can lower it if you are closing older credit lines. Regardless of if you prefer a newer credit card, keep the old one and use it occasionally to keep it active for a more reliable credit history.
9. Look for loans or new credit in a short period of time
When you are looking for a home, it is tempting to try to find out what you qualify for before you decide if you’re ready to buy a home but this could hurt your credit. Every time a lender, whether it’s for a loan or credit card, pulls your credit, your credit score is docked points. The only exception is when there are several inquiries within a short period of time. Then, these inquiries are grouped together as one search for a loan. Work with your real estate agent to help you decide if you are financially and emotionally ready to buy a home.Once you’re ready,then you can start asking companies for prequalification or approval for a loan.
Mediocre or bad credit doesn’t have to hurt your dreams of being a homeowner. Use these 9 ways to improve your credit score and make a positive difference in your life. A good credit score applies to much more than owning a home; it affects every aspect of your life. Buying a car, getting cell phone service, even applying for school loans are all impacted by your credit score. A bad credit score can haunt you for years if you don’t do anything about it. Remember, there is always something you can do to improve your score. It is a look at your history and with every month that passes you can improve your credit history.