If you’re thinking about buying a home anytime soon, you must have a good credit score. You’ll be able to afford a better home if your score is higher. Did you know that just one point on your credit score can save you hundreds of dollars on your monthly mortgage payment?
But what do you do if your credit score isn’t great? While a low credit score won’t change overnight, it also doesn’t have to haunt you forever. It may take a few months to show positive changes, so get started NOW! Think of improving your credit score as a marathon instead of a sprint.
Here are 5 tips to improve your credit score:
1. Know Your Score
Knowledge is power, so the first thing is to know your score. You need at least a score of 580 to buy a home, but of course the higher your score is, the better. You can request a free copy of your credit report once a year. Your score won’t be included on the free reports, so you’ll have to pay if you want to see that.
There are other ways you can review your score for free: credit card companies often include it on your monthly statements and third-party websites like creditkarma and credit.com give you a simulated score. Even though it’s not the exact number lenders see, it will give you a good idea of where you stand.
If you choose to purchase your score, it should come with a list of risk factors. This list is a great starting point on any areas that need to be improved.
2. Pay Your Bills on Time
Since lenders don’t want to give money to someone with a history of missed payments, the biggest factor that determines your credit score is your credit history.
When you pay a bill more than 30 days late, your score can go down over 100 points. If this has happened to you, it’s time to control your spending and make it a top priority to pay your bills on time.
An easy way to ensure this happens is to set up automatic payments for each account you have. If this isn’t an option, set calendar alerts on your mobile phone to remind you before each payment is due.
3. Decrease Your Debt
Too much debt is one of the biggest reasons for bad credit. So, if you have a balance on any of your credit cards, make a plan to pay them off as quickly as possible. Here are some ideas to help you:
- Once a week, confirm your balances and total credit limit
- Set up balance alerts that will warn you of overspending
- Distribute payments equally across all your accounts
- Make more than one payment per month if possible
- Get a part-time job to increase your income
4. Keep Old Accounts and Loans Open
Sometimes people close their old credit cards and loans after they pay them off. While this may seem like a good idea, it might actually hurt your credit score.
Your old credit accounts and loans show that you’ve been responsible for credit over the years. You want lenders to know you’re reliable, so keep those old loans and accounts open.
5. Don’t Have Too Many Credit Cards
Having one or two credit cards that you use responsibly will help improve your score. If you don’t have a credit card, open an account, make a small purchase each month, and pay it off immediately.
Be careful not to apply for a lot of new credit at the same time since lenders may take this as a sign that you plan to take on a lot of new debt. Applying for new credit can improve your score, just spread out your applications.
To avoid going into debt, only charge what you can afford to pay off in full every month.
Be patient. It takes time to improve your credit score, but it is possible. Stay focused on the end goal, check your credit scores often, and make smart choices. Your hard work and determination will pay off, and then you’ll be ready to buy the home of your dreams! Call us today so one of our expert loan officers can offer advice and help you get started.