Oh, that magical FICO score; that number that tells lenders you are either a good risk or a bad risk. But what if you’ve had situations happen that have been out of your control such as an ex-spouse, parent, or delinquent child ruin your credit score? Maybe you’ve had some hard times and that credit score is not where you’d like it to be. There are some ways you can quickly increase your credit score, but it’s not going to be overnight. However, if you’re planning on refinancing or applying for a home loan in the next year, there are some things you can do now, to get yourself on track and increase that credit score.
The first is usually the easiest. Simply request a copy of your credit history report. This can be done for free once per year each by one of the three major credit scoring departments, Experian, Trans Union, and Equifax. Places like Nerdwallet.com and credit score companies can also give you a free credit score and report, but you wanted to be detailed so that you can review it carefully, correct any errors or mistakes, and know exactly what lenders are looking at when they pull your credit. Take the time to review the history report. Is everything accurate? Are there accounts you have forgotten you even opened? Make sure the report is as accurate as possible before moving on.
Don’t cancel any open accounts that have zero balances. This might sound counterintuitive, but open and available accounts are valuable. For instance, if you have a credit card with a $1000 balance and you have maxed it out, but you have to other credit cards with zero balances, if you close those zero balance cards your debt to income ratio with available credit will go down to zero. Currently, you have three accounts, with only one of the maxed out. You have excess credit that you are not using. If you close those accounts, now it will only look like you have one account that’s maxed out. Lenders don’t like that.
Pay everything on time. This includes medical bills, electricity and utility bills, rent payments and additional mortgages, and any other loan payments such as car, student, or lines of credit. The more often you pay on time and above the minimum payments, the better your credit history will look.
Put things on automatic pay. Automatic payment is a great way to guarantee that you’ll pay things on time. Too many people simply forget and by then, late fees are taxed on and a red flag is put on your credit history.
Pay down as much debt as possible. Obviously, this is one of the most important things you can do to improve your credit history. Pay off the smallest debts first and then don’t cancel the account. Work up to the next one and so on. Write up a budget of exactly how much you make each month and how much must go out each month, not including revolving amounts such as gas, food, and fun. After all of the necessary payments have been made or accounted for, the remainder should be accounted for food, clothing, gas, and miscellaneous. Set aside a little extra out of that each month to pay off one debt at a time. As soon as that debt gets paid off, roll that same amount into the payment for the next debt until everything is paid off. This might take a while depending on how much debt you have, but the faster you get going on it, the quicker you will be debt free and have a better credit history. Just several months of doing this will increase your score anywhere from 25 points to 150 points.
So number should I be shooting for with my credit score?
Any number above 680 is likely to offer the best rates and the best terms for a mortgage or home loan. Rates between 630 and 680 are still decent but may require additional mortgage insurance or higher interest rates. If you are below 600, I would suggest taking some time and increasing that score slightly. However, don’t despair, because there are so many different options and programs out there even for those with low credit scores. My suggestion is to give us a call first, understand where you sit credit wise, and we can help with the right direction to increase your score over the next 3 to 6 months.
Homeownership is possible and there are so many options out there, it really pays to contact Xpress Lending first so you have a better idea of where to start.