If you’re planning on applying for a mortgage for a new home, you’ll want your credit score to be its best. Your credit score can be the difference between being approved or denied a mortgage and even your mortgage’s interest rate!
Is your credit score less than stellar? Don’t worry; all is not lost. With some work, you can you’re your score around. Repairing your credit isn’t a quick fix; it typically takes between three to six months of good behavior before a noticeable change appears. Don’t be discouraged if you don’t see immediate changes; just keep plugging away!
Here are some essential steps that will help improve your credit score:
Review your credit report
Before you can begin improving your credit score, you need to know what you’re working with. If you haven’t already, request a free credit report (you’re entitled to one report each year from each of the three reporting agencies. And don’t worry – requesting a free report won’t affect your score) and review it with a fine-tooth comb. Since your credit score is based on the information in your credit report, it’s especially important for that information to be correct. Make sure your information is accurate and report any mistakes to the appropriate agency. You’ll want to review each report separately as errors may appear on one report but not the others.
Pay your bills on time
Your payment history is an important factor to determining your credit score, so missing payments can have a dramatic effect. Late payments (usually between 30-60 days overdue) typically remain on your credit report for seven years so it makes sense to pay your bills on time. If you have a history of late payments, consider signing up for automatic payments so you have one less thing to worry about.
Reduce credit card balances
Focus on paying off any outstanding balances, especially credit cards. Because credit cards typically carry the highest interest rates you’ll want to get rid of those balances first. Start by focusing on card that is closest to being “maxed out” and moving on to the next card once your debt has been eliminated. If you can afford it, check with your credit card lender to see if they accept multiple payments during a billing cycle.
Avoid opening new lines of credit
While you’re rebuilding and strengthening your credit score, resist the temptation of opening additional lines of credit. Often, opening new lines of credit is given as a “quick fix” for improving your credit utilization rate, it could lead to more trouble. Additionally, some creditors and lenders may view these new lines of credit as you taking on new debt or having issues paying it off. Instead, focus on paying down your current balances instead.
Watch your credit utilization rate
Now that you’re well on the way to a better credit score, you’re work isn’t over just yet. You’ll what to keep your eye on your credit utilization rate. Credit utilization rate is the percentage of available credit you have versus how much you’re using. The smaller the percentage, the better it is for your credit score. An ideal utilization rate is 30 percent or lower. If your utilization rate starts to creep up, find ways to pay down outstanding balances to lower it.
Following these steps will not only save you money in the long run, but it’ll also help you to establish a healthy relationship with credit. When you begin to apply for mortgages in the future, you’ll appreciate the hard work you did to clean up your credit report now.