It’s no great secret that your credit report will dictate your eligibility for qualifying for a home loan. And it’s no secret that your credit score affects your credit report. But have you ever thought about what factors can influence your credit score? If you need to know how to improve your credit score today’s article will help you.
Your credit score isn’t solely affected by your credit card and mortgage payments. Even falling behind on your energy bill can result in a negative impact. And even if you’re lucky enough to refinance for a new home loan, you may find the subsequent mortgage fees to be entirely unmanageable.
Bad credit can seem like a vicious cycle which is next to impossible to break out of. But it doesn’t have to be. And while improving your credit score is a long term process which may not bring you overnight results, the long term effect on both your credit report, your eligibility for a home loan and your peace of mind is inestimable.
Here’s 10 of the best ways to help improve your credit score and qualify for a better home loan in the process.
10 Ways to Improve Your Credit Score
1. Don’t Fall Behind On Mortgage Payments
Terms for a home loan are set by a mortgage lender; and while many will look at your entire credit history before determining your approval, they’re more specifically interested in your mortgage payment history. The average mortgage debt in Utah is estimated to be well over $200,000, and you can’t afford to jeopardize a future loan by adding more to it. While you shouldn’t ignore the overall impact of late payment from other bills (remember that your credit rating can last up to seven years), your mortgage payment is likely the most considerable monthly payment you have to make. Always ensure it’s your top priority looking at ways to improve your credit score.
2. Use Credit Cards Wisely
One of the saving graces of credit cards is establishing a monthly budget for their usage. And while homeowners with bad credit may find themselves having to settle for a card with a high APR, the good news is that by paying off your monthly statements in full you can avoid a negative impact on your credit score—so long as you budget accordingly. If you’re currently relying on credit for the vast majority of your expenses, you may want to reevaluate your spending habits. There’s no sense in paying more tomorrow for what you need today if you can help it.
3. Avoid Closing Unused Credit Card Accounts When You Can
It comes as a shock to many people, but closing a credit card account can actually affect your credit score negatively—even if you no longer use it. In fact, the unused credit card account can be automatically deactivated by the card issuer if you don’t use it after a certain number of months after originally qualifying for it. If you have a number of credit cards not in use it’s best to consider spreading smaller purchases among all of those cards not in use to avoid closure of your accounts. Even a minor purchase once a month paid off regularly can help keep the card active. Paying more than the minimum balance each month is of course going to indicate to creditors that you’re making a concerted effort to improve your score. You may not see an immediate impact by this strategy, but over time you’ll find your credit score bolstered considerably.
4. Don’t Apply For New Credit
Similarly, applying for new credit and loans can often result in a hard inquiry on your credit report. Hard inquiries may not seem like they’ll automatically impact your rating; and generally speaking, they’ll disappear after two years. But too many inquiries will affect your score negatively. It sends an unspoken message that you’re simply not responsible enough to manage your current credit wisely. Work with what you currently have for the time being. You’ll feel much more secure knowing you can work within a budget than working outside one.
5. Avoid Consolidating Your Debt
It may seem to make more sense to consolidate your balances onto one card for the sake of convenience. But if you find yourself with regular credit debt, you’ll likely max out your cards sooner than you think. Distributing your balance over several low interest cards may seem time consuming and inconvenient. But it helps keep your credit cards active; and assuming you’re making on-time payments, indicates you’re actively working towards rebuilding your credit.
6. Negotiate With Creditors
Creditors aren’t always as irrational as they may seem. For the most part, they’re putting their trust in the hopes that as a consumer, you can pay your bills responsibly. Many understand perfectly well if you’re facing temporary financial hardship, and can work with you to establish a regular payment plan within your budget. Many times card companies will lower your interest rate indefinitely by simply asking them. The same goes for increasing your credit limit. Just ask. There is also the option of working the the consumer credit counseling department of the credit card issuer to discuss options of getting your credit standing back on track. That is a much better option instead of just letting your credit go down the drain.
7. Avoid Bankruptcy If You Can
I’ve discussed the benefits of filing for bankruptcy before, and it can certainly seem like an immediate relief for many homeowners. But the damage to your credit rating will also be fairly dramatic—especially if you’re filing for Chapter 7 bankruptcy. A bankruptcy filing will stay on your credit report for up to ten years, and for many Utah residents there’s no quick fix to rebuild your credit score as a result. Bankruptcy filing may seem like a temporary solution which can relieve you from your creditors; but in reality your credit will be affected negatively for quite some time which will ultimately be a gigantic red flag for most lenders issuing credit to you.
8. Separate Your Accounts After A Divorce
You’re not released from financial obligations when paying off a joint account simply because you’re divorced. If both your names appear on the account, you’re both liable; even if you’re responsible and trustworthy when managing finances. Either close any and all joint accounts, or remove your name from them. If you’re finding that you have difficulty rebuilding credit as a result of an ex-spouse’s spending habits, start slowly to improve your credit score. It may take a year or more to reestablish your credit independently, but lenders are frequently more than understanding when it comes to the sensitive financial nature of your credit score after a divorce.
9. Review And Update Information In Your Credit Report Regularly
It’s not unheard of for credit reporting companies to make mistakes on your report. In fact, an estimated 1 in 5 Americans may face potential inaccuracies as a result. This can frequently be a result of outdated or simply erroneous information, such as mistaking your credit score with someone of a similar name. That’s the bad news. The good news is that you can dispute the information from any one of the three major providers (Experian, Equifax or TransUnion) if you catch a mistake in enough time. If found in fault (you’ll likely have to provide documentation), you or a credit provider can request to have it removed within 30 days with no lasting impact on your score. It is recommended that you avoid excessive inquiries into your credit; once every 4 to 6 months should be sufficient enough to spot any mistakes.
10. Pay Off Any Outstanding Debt
For most people, this may be virtually impossible. After all, debt occurs for a reason; and more often than not, there are circumstances beyond your control. It’s not that you don’t want to pay off debt. It’s simply that you can’t.
Quick cash solutions, such as borrowing money from a hard money lender to access your equity isn’t always the most effective way of paying off debt. But at Gary Buys Houses, you can access your equity and see immediate relief through our “Sell Now, Move Later” program. It’s a no hassle way to assure your home sale on terms you can work with. We can even arrange to sell your house back to you once you find yourself in more fortunate circumstances.
It may seem rare if you find your current home mortgage to be accommodating. And it’s even rarer to qualify for a better home loan if your credit score is less than perfect. But improving your credit score isn’t always an uphill battle. It may be a slow one; but with time, foresight and caution, you can be certain you’re capable of reaching that goal.