7 Steps to a Better Credit Score
So, you're ready to make the leap from renting to owning your own home, but you're worried that your credit score might hold you back. If that's the case, you're far from alone. Our real estate agents get a lot of questions about how prospective homeowners can improve their credit score before buying a house, and we're here to provide some answers.
- Get Started Early
As much as we'd all like to improve our credit scores overnight, bear in mind that working on your credit is a marathon, not a sprint. There are plenty of actions you can take that will boost your credit and make you look better to lenders, but they take time. The earlier you can start working on your credit, the better off you'll be.
- Check Your Credit Report
TransUnion, Equifax, and Experian all offer free credit reports. Get your hands on one, and go over it carefully. Not only will this give you a better idea of where you stand and what you need to do to make improvements, but it also gives you a chance to check for errors. Many credit reports contain mistakes that you can dispute, immediately improving your score.
- Keep Your Bills Current
We know this is sometimes easier said than done, but paying your bills on time is one of the best things you can do for your credit score. Most creditors will report whether your payments are timely or not, and your payment history affects 35 percent of your credit score, making it the biggest single contributing factor. If you have trouble remembering to pay bills on time, set up automatic payments to take forgetfulness out of the equation.
- Improve Your Credit Utilization
Credit utilization is the ratio between your credit card balances and your credit limits. For example, if you have outstanding credit card debts of $300, and your credit limit is $1,000, then your credit utilization is 30 percent. You want this number to be as low as possible, and the best way to achieve that is to free up credit by paying off your credit card debts.
- Use Credit Responsibly
Using credit cards isn't a bad thing. In fact, making responsible purchases and routinely paying credit card bills on time is a great way to build credit. So once you have your credit card debt under control, feel free to use credit cards to pay bills and make small purchases; just make sure to keep the balance current.
- Keep Positive Accounts Open
You might be tempted to close out credit accounts once you've paid them off or eliminate old lines of credit that you no longer use. In reality, there is no discernible benefit to doing this, and it could actually hurt your credit score. Actually, leaving old accounts open can help your credit score by giving you a longer credit history.
- Be Careful About Getting More Credit
There are pros and cons to opening new lines of credit. On one hand, having more available credit will improve your credit utilization ratio. On the other, opening a new line of credit decreases the average length of your credit history, which may hurt your score. Be sure to carefully weigh the potential costs and benefits before you open any new credit accounts.
We firmly believe that homeownership should be within everyone's reach, and we're committed to providing the tools you need to make that dream a reality. In fact, we've designed a home-buying tool just for you! You enter a few pieces of information, and we'll return a list of homes we think are affordable for you based upon those entries.
Our mortgage partner, Movement Mortgage, is available to assist you in qualifying for and obtaining a home loan.
Contact us today to learn more about how you can boost your credit score and improve your ability to own your own home.