Improving Your Credit Score - Northern Title Blog
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Improving Your Credit Score

Improving Your Credit Score

Buying your first place is important, and expensive–especially if you don’t have a decent credit score. 

Credit scores can range from 300-850, and most lenders consider anything 700 and above to be a good score. However, according to a report in 2018, over 43 percent of American consumers had a credit score less than 700. In fact, the average FICO score in America is 695. and the average Vantage score stands at 673.

Credit Score Significance

So why is a credit score so important anyway? It represents where your credit profile stands. If you have a good history of paying off your loans and credit cards, lenders are more likely to trust that you’ll pay them back, too. Having a poor credit score can prevent you from not only buying a home, but from renting an apartment, setting up utilities, securing new credit cards, and even from getting a job. The higher your score, the more likely your interest rate is to be lower. On the contrary, the lower your score, the higher your interest rate may be. 

Loans and Credit Scores

You don’t have to have excellent credit to buy a home. In fact, the minimum FICO credit score for an FHA loan is 500. However, you may need a larger down payment if it’s not in good standing. Those with a score of at least 580 can expect to pay a down payment of 3.5%, while those with scores between 500-580 will need to pay at least a 10% down payment. 

To save yourself some money, aim for a score of at least 700 or more. A score higher than 800 is considered excellent. 

Ways to Boost your Score

It’s important to understand that raising your credit score is not an overnight process. It takes time and patience as you judiciously take care of your financial obligations. In fact, it may be anywhere from three to six months before you notice a difference. The following steps will also help boost your rating:

1. Know your score. 

Those who are aware of their score are more likely to improve their credit behavior. Federal law allows you to get free consumer credit reports from each of the major credit bureaus (Equifax, Experian, and TransUnion) one time each year. Refrain from checking your score more than that unless you suspect identity theft, or your score could be negatively impacted.

Check the report closely and dispute any discrepancies found. Notifying the credit agency of errors or outdated information will raise your score as soon as the false information is removed.

2. Pay your bills on time.

Consistently paying your bills on time can raise your score within a few months. Set reminders on your phone, on your calendar, or in your planner, or set up automatic payments to be withdrawn each month so you’re always on time.  This is one of the most, if not THE most important elements to raising your score. 

3. Refrain from applying for new credit cards.

If you open multiple credit cards in a short time you could do more damage than good. Limit yourself to the ones you currently have, and don’t be too quick to close out old accounts either. If you must consolidate, close out more recent credit cards as a longer history is better for lenders to review. 

4. Communicate with your creditors.

Believe it or not, your creditors are likely to work with you if you contact them about missing a payment or being short on cash. They can help address your problem and get you set up on a payment plan, all without having negative consequences. 

5. Build a strong credit history.

Credit bureaus look at your history of repayment. If you have a short credit history (less than five years), your credit score may be lower. Start your credit history strong by paying on time and spending wisely.

You can also ask a friend or family member with a strong, long history of on-time payments to be an authorized user on their credit card. However, they may be skeptical of doing this as they would be responsible for any charges you make. 

6. Apply for a credit card.

Some people have a low credit score just because they haven’t shown how responsible they are with one yet. This is especially true for young people, or those who have never had a credit card before. Just make sure you pay on time each month. 

7. Pay more than once in a billing cycle.

If you are able, pay your bills every two weeks instead of once a month. Not only will this lower your credit utilization, but it will improve your score.

8. Pay off outstanding debts.

If you can afford it, pay more than the minimum monthly payment on your credit card to relieve the debt faster. Cards that are “maxed out” will bring down your credit utilization rate, and can be sent to collection agencies-which will hurt you credit score more.

9. Diversify your accounts.

People take out loans for lots of things: mortgages, cars, education, credit cards, etc. These all account for roughly 10% of your credit score. Adding another element to the mix helps your score, so long as you make your payments on-time.

10. Consider debt consolidation. 

Consolidating your debts could result in lowering your credit score initially, but if you make on-time payments, your score will raise. 

11. Fix your credit utilization ratio.

Even if you’re paying your monthly balances in full, your score may be hurting if your credit card balances every month are more than 30% of your credit limits. This happens because your statement balance is being reported to the bureaus, so review them and opt for pre-paying some of the balance. 

 

Credit scores play a crucial role in getting into your dream home. If you’re not where you want to be, don’t worry. Improving your credit score IS possible. Let us at Northern Title help you get into the home you want. Contact us at one of our offices today to see how.