For many people, the term “credit score” can give them goosebumps. If you’ve struggled with debt in the past, getting a good credit score may feel like it is impossible, but with time, effort and these 5 tips you can drastically improve your score.
There are many factors that go into determining what your credit score is, but no matter who you are, following these steps will help you improve your standing in the eyes of the banks and improve your chances of getting an affordable mortgage when the time comes.
Step One: Check for Errors
The banks are not infallible. Sometimes they make mistakes. So, the easiest way to improve your credit score is to make sure it is accurate. You can request a free copy of your credit report and then check to make sure that any late payments, and the amounts you owe on each account, are listed correctly. If they’re not, you can dispute errors with the credit bureau.
Step Two: Reduce Your Debt
Obviously, the best way to improve your credit score is to attack it head on and reduce the amount of debt you’re carrying. Go through all of your accounts and note how much you owe and what the interest rate is. With that information, you can develop a plan to focus on paying off the account with the highest interest rate first. Maintaining minimum payments on your other accounts while doing this is very important.
Step Three: Get a Credit Card
This might sound counterintuitive since we’re trying to reduce your debt level here, but getting a credit card or two can help improve your score so long as you use them accordingly. You need to build a history of responsible credit management so, if you can make small charges to a credit card and repay them regularly, it will help convince the banks that you are a safe person to lend money to.
Step Four: Don’t Max Them Out
While having credit cards is a good thing, using too much of your available credit will make you seem like a riskier borrower. If you’re spending $900 a month on a credit card that only lets you use $1000, your credit score will be negatively affected. A good “credit utilization ratio” is around 30%, and if you’re able to use just 10% of your available credit, you can get the best possible rating in this part of your overall score.
A reliable way to improve this part of the score is to get a higher limit on your credit card. So long as you don’t also start spending more, you’ll have a lower utilization ratio, and thus, a better score.
Step Five: Pay Your Bills Twice A Month
Continuing from the previous point, using too much of your available credit at any one time can negatively impact your credit score. So, if you use up 30% of your limit in the first two weeks of the month, paying it off early will maintain your reputation of having a low utilization ratio.
Since some lenders just look at the balance on your statement – how much money you’ve used since your last payment – you can reduce this number, and improve your score, by making sure you never have a particularly high balance. More frequent payments can also help accomplish this as it will not only help keep your balance down but it will also be easier on your cash flow.
If you feel like you are drowning in debt, don’t despair. You do have the ability to manage your financial obligations, and pay them off in a way that will put you in a good position to get a mortgage or other major loan down the line. And just how good does your credit score need to be to get a mortgage, you ask? Well, make sure to read my previous post for a full rundown so you know what to aim for. Or if you would prefer a more thorough look into your current financial standing don’t hesitate to give me a call at 705-315-0516. I’m here to help you in any way I can to get you approved for the mortgage that will bring you one step closer to your dream home.