Want to increase your credit score before buying a home? It might be easier than you think. Focus on these 6 steps and watch your score climb.
Source: How to boost your credit score
What Can Improve a Credit Score
Keep Your Balances Low
It’s important that you try to keep your balances at 40 percent or lower. Generally speaking, the less you owe, the less you’ll need to pay off. Not to mention, the less you owe to your lenders, the better you look as a borrower, and the higher your credit score will be.
Pay Your Bills on Time (Or Early)
The last thing you want is to get behind on your credit card bills, this is where your balances will start getting out of control, and you’ll be spending more than you like. It’s crucial to your credit score that you make payments on time if not early, to improve your overall score.
Sort Out Accounts in Collection
You can keep on trying to transfer it to new accounts, but we suggest that you simply pay off your balances to avoid the hassle. Once you know who your debt collection agency is, contact them and see what you have to do to pay off the balance and report it as “paid off” on your credit score.
However, if the debt seems inaccurate, you should dispute it immediately with the three credit bureaus. The sooner you get your accounts in collection sorted out and paid off, the quicker your credit score will improve.
Get a Secured Credit Card
A secured credit card is a form of credit card that makes you deposit money into the card itself as the line of credit. However, it’s single-handedly the best type of credit card to help your credit grow because you can get one with even the worst credit.
Don’t Delete Old Debt from Your Credit Report
Old debt that is handled correctly is actually a good thing. It shows creditors that you are responsible with your credit. Many people make the mistake of trying to remove an account from their report as soon as it is all paid off. Leaving good debt on your account will lengthen your credit history and boost your score.
Pay your bills on time, every time
Your payment history on credit cards, car loans, utilities, etc. is the single biggest factor in your credit score, weighted at about 35 percent. Even a single 30-day-late payment could knock 100 points off your score — and that can really hurt. FICO considers how late you were, how many times, how much was owed, and how recently it happened.
You can’t erase the fact that you were late — that will stay on your credit report for up to seven years – but you can get back on track and move on. The farther slip-ups recede into the past, the less they affect your current score. If your credit history doesn’t have a lot of other problems in it, your score will recover pretty quickly.
So if you’ve missed any recent payments, get current and stay current. We recommend setting up automatic payments or reminders for those times when life gets out of hand.
Pay down debt, especially on credit cards
The size of your debt accounts for about 30 percent of your credit score, so shrinking it is another priority. Your credit cards are the best place to start, especially if you’ve overdone it. Stop using them and start paying more than the minimum monthly payment on the one with the highest interest rate.
Once you pay off an account, you don’t necessarily want to close it. Having unused credit is actually very good, you’re building credit history and demonstrating that you have your financial act together. In mortgage terms, you’re a low risk. But lenders don’t want to see high balances or too much of your income going to monthly debt payments.
The last debt to pay off is medical debt. Even FICO recognizes that medical debt is the pits, so it hurts your credit score less than other kinds. Next-to-last is student loan debt, partly because it’s an installment loan that’s expected to be long-term: paying it off early won’t help your score (although it will help your debt-to-income ratio). It’s also understood as an investment in your future income.
Control your credit utilization ratio (wait, what?)
Your credit utilization ratio reflects how much of your credit you’re using within a monthly billing cycle. Basically, you don’t want the balance on your monthly statement to be more than 30 percent of your limit. Even if you pay it off in full by the due date, your score is getting dinged. The statement balance is what’s being reported to the credit bureaus, and a high one makes it look like you’re “utilizing” the plastic a lot. So try to keep the balance that shows up on your monthly statement under 20 or even 10 percent of your limit.
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