Home Mortgage - 5 Ways to Boost Your Credit Score
Home Mortgage: 5 Ways to Boost Your CreditBefore You Apply
The home buying process doesn’t begin when you walk through your first open house – it starts long before that. One of the first steps to home ownership is figuring out your finances, and that includes understanding your credit, a critical piece of the buying puzzle.
You will often see yourcredit score referred to as a FICO score. This three-digit number, runninganywhere from 300-850, is calculated by combining your payment history, outstandingdebts, length of credit history and more, to determine if you are a good riskfor any financial lender.
Problems arise when yourscore falls below approximately 650. However, if you feel like you might fallshort of your dream of homeownership due to less than stellar credit, don’tworry because you’re not alone. The national average credit score is 704. Which leaves less than half of consumers inthe range that lenders desire most. Although you certainly can get a mortgagewith that score, you’ll need a 740 or higher to get the best rates, and while credit history isn't builtovernight, there are still some things you can do right now to boost yourcredit 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 bigfinancial changes before purchasing a home is a smart decision. That means nobig purchases on credit, like buying a car or charging an expensive vacation.Any significant buys can alter your financial picture, and banks don’t like tosee sudden changes just before approving a loan.