New Year, New Home? Improve Your Credit Score!
Is buying a home on your to-do list for this year? If so, it may be time to start addressing your credit score. While it’s possible to qualify for a mortgage with scores as low as the 500s, higher scores will yield you more options and better rates, which means greater affordability and more buying power.
While there is no magic bean that will raise your score by hundreds of points overnight, there are some tricks that could help you move into the qualification zone or improve your rate, and make sure you don’t take another hit by making a silly mistake.
Pay off collection accounts
Some older collection accounts aren’t worth paying off if you’re strictly looking to boost your score. You may be able to pay newer accounts and see a bump in your score—if you can ensure that the creditor will report the payment to the credit agencies. Financial experts also typically agree that you’re better off paying the original creditor, not the collection agency. Your lender should be able to help you figure out your best plan of action when it comes to who to pay, and how.
Pay down your balances
“The second most important factor in your FICO score is the amounts you owe, which accounts for 30% of your score,” said NerdWallet. “In addition to considering how much you owe overall, FICO looks at your credit utilization, or the amount you owe as a percentage of your available credit. The higher your utilization, the more likely it is that you’ll be overextended and may miss payments. Keeping your credit card balance relatively low, then, can provide a significant boost to your credit. Aim for 30% or lower.
Get a credit card
Yes, this sounds like the opposite of what you should do when trying to improve your credit score, but but the right kind of credit can make a positive difference. “A credit card can be a 100% free way to build up your credit, as long as you use it responsibly,” said Credit Card Insider. “
Use Experian Boost
Experian Boost is a new product "that allows you to add utility and cell phone bills to your credit file,” they said. “Most scoring models take into account your payment history on loans and credit cards, how much revolving credit you regularly use, how long you've had accounts open, the types of accounts you have and how often you apply for new credit. If you've been making utility and cell phone payments on time, there is a way for you to improve your credit score by factoring in those payments through a new, free product called Experian Boost.”
Dispute Any Inaccuracies on Your Credit Reports
“You should check your credit reports at all three credit reporting bureaus…for any inaccuracies,” said Experian. “Incorrect information on your credit reports could drag your scores down. Verify that the accounts listed on your reports are correct. If you see errors, dispute the information and get it corrected right away.”
Sign up for automatic payments
Payment history is a huge part of your credit score—35%! With so much at stake, on-time payments should be a priority. We all know that accidents happen. Setting up automatic payments can help you avoid those oopsies. Some companies, like T-Mobile, also offer monthly savings for setting up automatic payments.