How to Improve Your Credit
Paying bills on time is just one step in maintaining a good credit score.
Credit scores play a big role in determining whether you’ll qualify for a loan and what your loan terms will be. So, keep your credit score high by doing the following:
Check for errors in your credit report.
Thanks to an act of Congress, you can download one free credit report each year at annualcreditreport.com. If you find any errors, correct them immediately. The Consumer Financial Protection Bureau explains what you need to know.
Pay off credit cards.
If possible, pay off the entire balance every month. Transferring credit card debt from one card to another could lower your score.
Don’t charge your credit cards to the max.
If you can’t pay the full balance, you’re overextended. Pay down as much as you can and review your budget to see where you can reduce expenses.
Wait 12 months after credit difficulties to apply for a mortgage.
You’re penalized less severely for problems after a year.
Don’t order items for your new home on credit.
Wait until after your home loan is approved to charge appliances and furniture, as that will add to your debt.
Don’t open new credit card accounts.
If you’re applying for a mortgage, having too much available credit can lower your score.
Shop for mortgage rates all at once.
Having too many credit applications can lower your score. However, multiple inquiries about your credit score from the same type of lender are counted as one if submitted over a short period of time.
Avoid finance companies.
Even if you pay off their loan on time, the interest is high and it may be considered a sign of poor credit management.
What to Know About Credit Scores
A credit score above 620 is generally considered desirable for obtaining a mortgage.
An individual's credit score typically ranges from 300 to 850 with scores above 620 considered desirable for obtaining a mortgage. Buyers may qualify for an FHA loan with a score of 500–580, depending on the size of their down payment. The following factors affect your score:
Your payment history.
Have you paid your credit card bills on time and paid off installment debt? Bankruptcy filing, liens, and collection activity also affect your history.
How much you owe and where.
People sometimes spread debt among several accounts to avoid approaching the maximum on any individual credit line. Not a great strategy. if you owe money on numerous accounts, it can indicate that you're overextended.
The length of your credit history.
In general, the longer an account has been open, the better.
How much new credit you have.
New credit, whether in the form of an installment plan or a recently obtained credit card, is considered riskier, even if you pay down the debt promptly.
The types of credit you use.
Generally, you build up your credit score by having more than one type of credit, such as installment loans, credit cards, and a mortgage.
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