Tips to Improve Your Credit

You’ve probably seen the advertisements – “Credit problems? No problem!” but as a potential home buyer, you should be aware that some of these credit repair companies are scams and some of these quick-fix efforts may backfire.  There’s really no fast track to fixing credit scores but with patience and discipline, you can maintain consistent, good credit history.  And if you plan on buying a home in the near future, your credit is important.  We’ve made a list of TIPS TO IMPROVE YOUR CREDIT.

Check Your Credit Report for Accuracy

The first step is to check your credit reports for mistakes, from each of the 3 major credit bureaus. Once a year, you are entitled to a free copy of all three of your credit reports under the Fair Credit Reporting Act. Go through each report to find any inaccuracies. If you do find any errors, you will need to dispute each separately with each credit bureau, since they are run separately from one another.

Determine What You Need to Improve

The next thing to do is go through your report and determine where your weaknesses lie.  There are 5 major credit scoring factors that have differing impacts.

• Payment History: Accounts for 35% of your score.  Missed or late payments can have a big impact on your score, and creditors see you as a bigger risk.
• Accounts Owned: Accounts for 30% of your score. Having several credit accounts won’t hurt your score.  Generally speaking, the greater the credit utilization on open accounts-resulting in a higher ratio, the more negatively it impacts your credit score. The smaller that percentage is, the better it is for your credit rating. Try to keep it at 30% or lower.
• Span of Credit History: Accounts for 15% of your score. The older your accounts, the higher your score will be.  If you don’t have any accounts or are new to credit, there won’t be a lot of data. You may need time to see your credit score improve.
• Credit Utilization: Accounts for 10% of your score. Lenders want to see a blend of credit cards and installment loans, including retail accounts, installments and auto loans, and mortgage loans  with good payment history. You don’t need to one of each of these types of accounts, but  having a blend will certainly help the cause. Having managed credit cards responsibly versus no credit cards will also have a more positive impact on your credit score.
• New Credit Accounts: Accounts for 10% of your score. Creditors get concerned of they see you’ve applied for a dozen new credit cards this month. Opening up too many accounts too quickly may indicate you’re overextended financially.  Additionally, newer accounts lower your average account age, negatively affecting your score.

Don’t Worry About Eliminating Old Debt

Trying to argue to remove old debt that’s been paid off will negatively affect your score. Debt that you’ve handled well and paid as agreed is good for your credit.  Your score is positively impacted with a longer history of good debt.

Pay Your Bills On Time

This is extremely important as it has the biggest impact to your score. Pay your bills on time!  Set up monthly calendar alerts on your phone. If you do have missed payments on your credit report, try asking your credit card issuer or lender if they can forgive that late payment.  They might be more forgiving if you have a long track record of making on-time payments.

Increase The Age of Your Credit

If you have newer credit history, there isn’t much you can do to improve this. Consider asking a friend or family member to be authorized user on one of their credit cards if they have a long history of on-time payments.  If you can’t find anyone to help with this, just be patient and don’t close any accounts.

In the long run, the best thing to do is to fix errors in your credit and then maintain consistent, good credit history.  Patience and discipline will go a long way in building or rebuilding credit history.  Learn more about repairing your credit on the FTC’s website.

If you’re thinking about buying a home, talk with one of our preferred lenders to find out how much you qualify for in today’s market. Simply fill out the form below.