Improve Your Credit!
If you’re looking to buy a house, the first place you might start is with a lender. The lender is then going to check your credit. The better your credit is, the better chance you have of getting lower interest rates! The good thing about credit, is that it isn’t permanent so you can raise your credit if you have a poor score. The lower your credit is, the faster some of these tips will work in helping you fix your credit.
Make sure all the information on these reports are accurate, such as your SSN, birth date, etc. If there are any errors you can dispute them.
- Dispute credit report errors
If there are any errors on your report you can dispute them, and the credit bureaus have 30 days to investigate and respond. Here is a list of some of the most common errors:
-Your identity was stolen and the thief is abusing your credit
-A collection account from years ago is still being reported, even though it’s past the statute of limitations in your state
-A bill your ex was supposed to pay (per your divorce) has gone unpaid for a while, and you are the one suffering from the consequences
-Your credit information has been mixed up with someone who has the same or a similar name
-You defaulted on one loan and it’s showing up as multiple defaults on the report because it was sold to debt collectors
-Any accounts or applications for credit you don’t recognize
-Not all of your accounts are being reported
-Items from decades ago still appearing
-Late/missed payments you recall paying on time
- Pay your bills on time
Your payment history has one of the biggest effects on credit scores and late payments can stay on your reports for up to 7 years! Lenders are interested in how reliable you are to pay your bills, so this is an important factor that is considered heavily. We’re all human and mistakes are bound to happen, so if you miss a payment, call the creditor immediately and ask them if they will consider no longer reporting the missed payment to the credit bureaus. They might not agree to this, but it’s still important to pay as soon as possible because every month that an account is marked negatively will bring down your score. The more positive credit behaviors after a misstep can help offset the damage more quickly. So, think of paying your bills on time like earning gold stars! Allll of your payments are included in this, not just your credit cards, so using apps or tools to make automatic payments might be in your best interest.
- Pay down your balances
The less debt you have the better off you are as the credit utilization contributes 30% to a FICO Score’s calculation. This is more effective than moving the debt around. Come up with a payment plan that puts most of your payment budget towards cards with the highest interest while still being able to make at least the minimum payment on your other accounts. You’ll owe less in interest in the long run. You can even plan to make smaller payments, often called micropayments, to keep the balances down. You can even treat a credit card as a debit card and pay it online as soon as you see a purchase is posted.
- Apply for credit only when necessary
Every time you try to open a new credit line, there is a “hard” inquiry on your credit report. So, while having more cards open will make your overall credit limit higher, it will bring your score down by a few points temporarily. “Hard” inquiries will stay on your report for 2 years. If you’re in between credit tiers, this especially recommended because you could be bumped down by just a few points. Having credit cards helps build your score but you must know how to manage them responsibly and make payments on time.
- Get higher credit limits on credit cards you already have
When your credit limit goes up, but your balance stays the same, you’re using a smaller percentage of your credit, so your overall credit utilization immediately goes down. You can call your card issuer and ask if you can get a higher limit without a “hard” credit inquiry, so it doesn’t pull your score down.
- Keep credit cards open
Closing credit cards can make it harder to improve your score because they will no longer be counted towards your credit limit when the overall credit utilization is calculated. Some cards may charge you a fee for not using them, so those may be worth closing. Otherwise, just use the card occasionally so the issuer won’t close it. Closed accounts don’t go away, they will still show up on your report and may be considered when calculating your score.
- Become an authorized user
You can ask a relative or friend that has a longer record of responsible credit card usage than you to add you to their card as an authorized user. They don’t have to let you use the card- or even tell you the account number for that matter- for you to benefit. Finding someone who will make you an authorized user on their accounts might be difficult if you want to use their credit cards, as they will be responsible for any charges you make. It does not affect their credit to just add you though and if you do not rack up charges on their account, you should be golden and have a longer credit history!
These aren’t all the tips out there to fix your credit, but it’s a good start! Remember that credit can’t be fixed overnight, but soon you’ll be on your way to excellent credit and a great interest rate on a loan!* Specific loan program availability and requirements may vary. Please get in touch with the mortgage advisor for more information.