A great credit score is essential for getting approved for a home loan. If you are not getting approved, it might be time to make some improvements to your score. Most people might be looking for the quickest fix, but everyone’s score is different and needs to be improved in different ways. There are a lot of things you can do to improve your credit, here are a few steps to get you started.
Steps to improve your credit score:
Step One: Obtain Your Credit Report and Review it for Any Errors
Everyone has three credit reports from the major credit bureaus: Experian, Equifax, and Transunion. The Fair Credit Reporting Act states that everyone is entitled to one free copy a year of all three reports. With this copy, you will be able to review your credit report for any errors. You’ll want to look for things like whether your personal information is accurate. It is important to make sure all of your accounts are being reported and there are not any that do not belong to you. Check over your missed and on-time payments to ensure all accounts have been reported properly. It is not uncommon for there to be mistakes, which is why it is so important to double check that your report is correct. If you do come across any error, be sure to report them and have them removed from your credit report.
Step Two: Improve Your Payment History
The most important factor of your credit score is making your payments on time. Any late payments you have made in the past will remain on your credit score for seven years. If you have a missed payment on your score, be sure to get it current and keep it current. It might benefit you to make payments twice a month to help keep your balance lower. Start managing your payments and pay everything on time. If your payments do not fit with your schedule, contact your bank and lenders to change payment dates.
Step Three: Handle Any Collection Accounts
Maybe you have debt that has gone to collections. You can start by paying these balances off if you have the extra money to do so. You can also offer your creditors the balance paid in full if they will remove the account from your credit report. When negotiating your balances make sure to get any agreements in writing.
Step Four: Reduce Your Balances
It is good to keep in mind that your accounts look better on your score when they are utilized below 30%. Your utilization is calculated by the ratio of how much debt you owe compared to your open credit limit. It will look better on your score if you are not maxing out your cards or coming close to it every month.
Step Five: Increase Your Existing Credit Limits
You may not have the cash it will take to lower all of your balances. Instead, try to increase your limits by contacting your creditors and lenders to see if your limit can be increased. After increasing your limits, do not immediately charge the card.
Step Six: Open a New Account Instead of Closing an Old Account
Having more than one credit card account will look better on your score than just having one. Your score lumps all of your open accounts together giving you a different percentage as compared to each individual account. Be sure to not apply for too many cards at once. The hard credit inquiries can have an effect on your score. Canceling accounts can cause your available credit limit to drop which does not reflect well on your overall score.
Step Seven: Become an Authorized User on Someone Else’s Account
If you know someone who manages their money and credit score very well, you could be added to one of their accounts as a way to help build your credit. This person does not have to give you access to the account, you just need to be added to the account.
Step Eight: If All Else Fails, Hire a Credit Counselor
It might seem a little scary to have to negotiate your credit with debt collectors. By hiring a credit counselor you could eliminate having to talk to these people yourself. Credit counselors can help with managing your debt to help you pay it off faster, hold you accountable to a management plan, and keep debt off your credit score while you pay it down.
These tips will help to improve your credit score but it is not a quick fix that you will see overnight. Most generally you will not see major results for three months or so. Managing your credit on a regular basis is the best way to improve your credit score.