2015 Goal : Improve Your Credit Score
When applying for a mortgage to help purchase your new home, your credit score will play a big role in both your application’s eligibility and your mortgage rate. In order to get your credit score as high as possible, here are some tips on what you can start doing today to begin improving your credit score.
Know Where You Currently Stand
Before you can begin improving you need to know where you currently stand. To get an up to date assessment of your credit information, contact the three major credit reporting agencies. By law Equifax, Experian and TransUnion are required to provide a free copy of their credit report to consumers every year. If while reviewing your credit information you come across some discrepancies be sure to follow up and dispute them.
Reduce Your Debt-to-Credit Ratio
Your debt-to-credit ratio can be one of the largest factors in determining your credit score, with the optimum ratio being one where your debt measures less than 25% of your available credit. When this ratio starts to increase, your credit score can begin to decrease. Any credit cards that are currently above this 25% rule should be put on a plan to reduce as soon as possible.
Up Your Credit Card Limits
Let us put a disclaimer next to this tip: you should increase your credit cards’ spending limits ONLY IF you have a disciplined strategy in place. In other words, do not increase your credit card limits if you plan on only spending more. However, if you do in fact have a disciplined strategy in place, the upping of your current credit card limits will help to decrease your debt-to-credit ratio.
Make Your Payments on Time
Your payment timing history can account for as much as 35% of your credit score. As simple as it sounds, paying your bills on time can be a huge factor in improving your credit score. If you need help in hitting your target due dates, think about utilizing an auto-pay system or setting reminders for yourself in your calendars.
Keep Old Cards + Reduce New Cards
Deciding to cancel a credit card that you have had open for a period of time can actually result in a negative impact on your overall credit score. In some situations it can be better to actually keep the card open, being selective in how you keep the card active. One strategy can be found in using the card to pay for a repeat bill (like a monthly utility bill) and then using an auto pay feature to make sure the card is paid off on a monthly basis. You also want to reduce or stop altogether the applying for/opening of new credit lines as these applications can negatively impact your overall credit score.
While being a huge factor in your ability to borrow, the good news is that improving your credit score is absolutely possible. By focusing on bringing your debt-to-credit ratios under 25%, getting your payments in when they are due, and being active in assessing your credit reports you can begin to systematically improve your credit score.