Home Mortgage - 5 Ways to Boost Your Credit Score
Home Mortgage: 5 Ways to Boost Your CreditBefore You Apply
The home buying process in Hermosa Beach and Manhattan Beach does not begin when you walk through your first open house, it starts long before that. One of the first steps to South Bay homeownership is figuring out your finances, and that includes understanding your credit, a critical piece of the buying puzzle.
You will often see your credit score referred to as a FICO score. This three digit number, running anywhere from 300 to 850, is calculated by combining your payment history, outstanding debts, length of credit history, and more, to determine if you are a good risk for any financial lender.
Problems arise when your score falls below approximately 650. However, if you feel like you might fall short of your dream of South Bay homeownership due to less than stellar credit, do not worry because you are not alone. The national average credit score is 704, which leaves less than half of consumers in the range that lenders desire most. You can certainly get a mortgage with that score, but you will need a 740 or higher to get the best rates. Credit history is not built overnight, but there are still things you can do right now to boost your credit score fast.
1. Check Your Credit Report for Any Mistakes
If you haven’t alreadydone so, get your credit report now. Every year, a whopping 20% of peoplenationwide report errors in their credit profile. (And by “errors,” I meaninaccuracies). You need to be aware that errors exist before you can solve them – and credit issues take time to correct.You’re entitled to a free report annually from each of the three credit bureausunder the FACT Act; just go to www.annualcreditreport.com to retrieve it.
Estimated time forImprovement: One to two months
2. Pay Down Your Balances & Keep Them Low
Paying down your debtcan have the biggest – and fastest – impact on your credit. Credit utilization(or the amount you’re qualified to borrow versus the amount of debt you have)accounts for 30% of your credit score. And the more available credit you have,the better.
If you have the cash onhand, try to time your payments so you’re reaping the credit-reportingbenefits. The easiest way to optimize your utilization is to pay your balancedown to less than 30% right before your bank reports to the creditbureaus. You can find out when your creditors report by calling them up andasking, or you can check your credit report.
Estimated time forimprovement: One month
3. Pay Your Bills on Time!
It sounds like ano-brainer, but if you’re looking to increase those scores over time in a clearand steady upward climb, never miss a payment. If you’re already late, pay thatbill ASAP along with any penalties for a quick credit boost. Plus, if you’reless than 30 days late when you pay you should be in the clear. Creditors don’ttypically report until after the 30-day mark.
Additionally, make morethan just the minimum payments on your revolving credits each month. A historyof minimum-only payments isn’t an ideal indicator for anyone reviewing yourcredit report. Always pay more – even if it’s just a small amount. You will chipaway at your balances faster and save money in the long run by lessening yourinterest owed.
Estimated time forimprovement: One to two months
4. Open a New Account
Opening a new creditaccount can help in two ways. First, it will increase your total outstandingcredit line, thus improving your credit utilization ratio. Secondly, if youhave only one type of credit card or a small loan, opening another type (like astore card) can help your "credit mix," a term used by the creditbureaus to indicate whether a person can handle diverse accounts.
However, don’t overdoit! Try opening just one or two accounts at first. Each time you apply for acredit card, the lending company does an inquiry into your credit history. Ahigh number of recent inquiries will cause you to take a hit on your creditscore.
Estimated time forimprovement: One to six weeks
5. Become an Authorized User
Have a responsiblepartner or family member? Becoming an authorized user on one of their accountswill let you piggyback onto their good credit history. The full history oftheir account will show up on your credit report giving you a helpful boost toyour score. And the older their account the better, as it might help extend thelength of your credit history. Just be careful to make sure the person youchoose pays his bills on time and keeps the debts low – just like good credithistory, bad history will show up, too.
Estimated time for improvement:Immediately
Bonus Tip: No Major PurchasesEquals No Hard Inquiries
Avoiding any big financial changes before purchasing a home is a smart decision. That means no big purchases on credit, like buying a car or charging an expensive vacation. Any significant buys can alter your financial picture, and banks do not like to see sudden changes just before approving a loan. At Levine Homes Real Estate & Construction, we walk Hermosa Beach and Manhattan Beach buyers through this timing as both a broker and a CSLB-licensed general contractor, so your credit profile and your renovation budget are both ready when you are ready to make an offer.