So you’re about to start looking for a new home.
You know you need a mortgage, and you want to get the best deal.
Since your credit score is the biggest factor in the rate you receive, increasing your score before you get a mortgage can help save you thousands of dollars.
In this article, we’re going to cover the different ways you can improve your score quickly so you can get the best rates and lowest fees on your next mortgage.
Rate Search: Get Approved for a Home Loan
1. Stay Current on all of Your Payments
Payment History = 35% of your FICO score
This one is a no-brainer, but you have to maintain a history of positive payments to have good credit. This not only includes things like credit card and loan payments but any bills.
Collection accounts are also included in your payment history. Collections can drop your credit rating as much as anything else. Make sure you stay on top of your payments and respond quickly to any collection letters.
2. Pay Down Your Credit Card Balances
Credit Utilization Ratio = 30% of your FICO Score
The amount of available credit you are using is called your credit utilization ratio. This ratio makes up 30% of your FICO score. Only your payment history, which accounts for 35% of your score, has a bigger impact on your credit score.
For example, if you have a credit card with a $1,000 credit limit and maintain a balance of $500 on it, your credit utilization ratio is 50%, which is considered very high.
By paying the balance of your cards below 15% of the limit, you will maximize your credit score. You could see an increase of 40-50 points just by paying down your balances.
3. Have a Mix of Credit and Loan Account Types
A mix of Credit Accounts = 10% of your FICO Score
10% of your credit score is made up of the mix of account types you have. If all you have are credit cards, your credit rating will be lower than if you had a deathly mix of credit.
Auto loans, mortgage loans, credit cards, store cards, personal loans. It’s good to have a few different types of credit and loan accounts to really maximize your credit score.
4. Do Not Apply for Credit or Open New Accounts
New Accounts and Credit Inquiries = 10% of your FICO score
Anytime you apply for a new loan or line of credit, the issuing creditor will run a hard inquiry. A hard inquiry occurs anytime you give a creditor permission to pull a copy of your credit report.
Soft inquiries do not affect your score. A soft inquiry occurs when you receive a pre-qualified credit offer, get a cell phone, or apply for insurance.
If you know you’re going to be applying for a mortgage soon, you should hold off on opening new accounts. When you get a new car loan, for example, you are adding credit inquiries to your report and a large amount of debt, which lowers your credit score.
5. Don’t Close Your Old Accounts
Average Age of Accounts = 10% of your FICO Score
If you’re like most people, you probably have a credit card or two you never use for one reason or another. Instead of closing the account, it’s actually best to leave it open. Because the average age of your open accounts makes up 10% of your score, the longer your accounts are open, the better.
An authorized user on a credit card account is a second person authorized to access and use the account. Once an authorized user is reported to the Credit Bureaus, that account will be added to their credit history.
While weighed less heavily, FICO still considered authorized user accounts into the credit scoring algorithm. If you have a close friend or family member with a credit card in good standing, preferably one that has been open for a long period of time. Ask them to add you to their account to help increase your credit score.
7. Dispute Your Negative Accounts
You may be able to get late payments and collection accounts removed from your credit report by disputing them. Contact all three major credit reporting bureaus and dispute each account.
When you file a dispute, the credit bureau will launch an investigation and has 30 days to validate the account, or it must be removed from your report by law.
You can do this by mail, online, or by phone.
Credit Bureaus Dispute Info
Consumer Dispute Center
P.O. Box 2000
Chester, PA 19016
Phone: 800-916-8800 – 8am-11pm EST
P.O. Box 4500
Allen, TX 75013
Phone: (714) 830-7000
Equifax Information Services LLC
P.O. Box 740256
Atlanta, GA 30374
Phone: (800) 846-5279