Tips for a Better Credit Score
If you’re planning to buy a home, it’s a good idea to check your credit reports and scores before you start looking for a house. Your credit score helps determine which loans you may qualify for and what interest rate you’ll likely be offered. The better your credit history, the more likely you will receive a good interest rate on a mortgage. While having a perfect credit score isn’t feasible for everyone, there are some steps you can take to help improve your score and grow your loan options. Homebridge also offers a variety of home loan options for those with less-than-perfect credit. Check out our affordable lending page for details.
A credit report contains information about your credit, such as the status of your credit accounts and your payment history. Credit reporting agencies (or credit bureaus) compile these reports. Credit scores are calculated based on this report using a mathematical formula called a scoring model, which companies and lenders use to predict how likely you are to pay back a loan on time.
Most lenders use a FICO® score when deciding on whether or not to offer a mortgage. Several agencies create FICO scores. Like all credit scores, FICO scores may change over time according to your credit behavior.
Here are some ways to raise your credit score, but be patient – it may be two to three months before you see the improvement.
Correct your credit history.
Your credit score is based on your credit history. So, it’s a good idea to review your credit report and correct mistakes or outdated information to help raise your score.
Reduce the amount you owe on credit cards.
Pay down all card balances, so the total amount you owe is below 30% of your total available credit. This is called your “utilization ratio.” If your total available credit is $10,000, for example, you want to owe no more than $3,000. Pull your credit report and confirm that your credit card companies are reporting your credit limit.¹
Start using a card you haven't touched for a while.
This sends a report to the credit bureaus, increasing your available credit and helping the utilization ratio. Since the length of your credit history contributes to 15% of your score, using an old card might help there as well.
Pay all bills on time.
Although this tip may seem common sense, it is worth mentioning because just one 30-day late payment can lower your credit score by 40 to 80 points or more.² Do what you can to always pay on time, even if you’re only paying the minimum.
Focus on revolving accounts versus installment accounts.
Revolving accounts, such as credit cards, let you carry a balance and pay a monthly minimum amount. Installment accounts require you to pay a fixed amount each month, like an auto loan. If you have money available, use it to pay down your credit card balances, not to pay off your auto loan sooner. This is because your credit score is heavily weighted to revolving accounts.
DON'T open a new credit account.
This lowers your score temporarily and makes a new creditor, like a mortgage lender, less eager to open another account for you.
DON'T close any accounts.
This reduces the amount of credit available to you and therefore lowers your credit score.
¹ Source: https://www.investopedia.com/terms/c/credit-utilization-rate.asp
² Source: https://blog.equifax.com/credit/can-one-late-payment-affect-my-credit-score/
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