It’s never too late to improve your credit.
If you’re thinking about buying a house, it’s important to have good credit so you can get the best mortgage rates and qualify for the most favorable terms. Your credit score is determined by many factors including payment history, debt levels, age of account, new accounts opened and more. You’ll want to be sure that your credit report doesn’t contain any errors before taking steps towards fixing them.
Here are some things you should know if you’re in the market of buying a house.
What Is My Credit Score?
Your credit score is a number that’s supposed to represent your creditworthiness. This is a numerical representation that helps creditors, lenders and other businesses determine the risk of lending you money or extending credit. The higher this number goes, the more likely you are to repay a debt, which means you’re a lower risk to the business.
Your credit score can range anywhere from 300-850.
Equifax®, Experian™ and TransUnion®, the 3 major credit reporting agencies that collect and maintain your credit information. When you apply for a loan, the lender will pull one of these 3 reports to review your history. The higher this number is, the more likely it is that you’ll be approved by the lender.
Payment history, credit utilization, the total amount of your credit, how old your account is and how many fresh credit applications you have are all part of your credit profile.
How Is My Credit Score Determined?
Payment history (35%) – Your payment history is made up of aspects like how frequently you make or miss payments, the days on average your late payments are outstanding, and how quickly you repay an overdue payment. You damage your credit score whenever you miss a payment.
Current loan and credit card debt (30%) – Your debt can be made of many things. The most important thing is how much you owe. If you have a lot of debt on your credit card, that will hurt your score. But if you pay off your cards then that will raise it. Maxed-out credit cards and high loan balances hurt your score, while low balances raise your score – assuming you pay them off, of course.
Length of your credit history (15%) – The longer your credit history, the more likely you are to follow similar credit patterns. Your score improves if you make on-time payments for a long time.
Account diversification (10%) – Creditors like to lend money to people who have a mix of account types, including credit cards and loans.
Recent credit activity (10%) – When you open a bunch of new credit cards or request a sudden increase in credit, some creditors may think that you are having problems with money. When this happens, they might charge you more for the card. So don’t apply for too many of these at once!
How to increase credit score immediately
How to improve credit score fast, try these tips:
Review your credit report
Understanding everything in your credit report will allow you to take the necessary steps in fixing bad credit. This will give you an idea of where you stand with creditors and how much work needs to be done.
Dispute any errors on your credit report (but be careful!)
If you see anything that doesn’t look right on your credit report, you’ll need to get it corrected by filing a dispute with the agency that made the mistake. You will need to provide proof of your claim, so gather as much information as possible before making the request.
When you apply for a mortgage though, everything must be fully resolved or else your loan can get denied.
This can potentially cause an avalanche of problems because if you’re denied a loan, you’ll lose your down payment and your earnest money.
Avoid making purchases on credit
When you have debt, don’t use credit cards even if you’re making you’re paying your bills on time . If you use them, you might have more debt and not be able to pay it off as quickly. You can hurt your credit score if you overspend on a credit card.
Don’t open or close any lines of credit
It is tempting to open a new credit card when you have maxed out your current one. But every time you do that, it lowers your credit score. That is why you should not open or close any lines of credit while working on getting a higher score.
Hire a Credit Repair Company to Fix Your Credit
Paying a credit repair company to fix bad credit can be controversial so it is something you should reserve for when you have only settled and paid accounts to contend with. It’s an uphill battle to dispute genuine unpaid debts on your credit reports. Based on our experience, unpaid collections have a greater chance of reappearing than paid or settled ones.
How quickly you can expect your score to rise
So do you want to know how to improve your potentially bad credit fast?
Paying down significant amounts of debt say, dropping your utilization from 80% to 20% can also pop your score up rapidly.
If all you need is error correction, you can see your FICO increase in a matter of days (but there is no guarantee).
But if your credit report is littered with late payments collections or other serious problems, it can take up to 12 months to raise your score so the faster you start, the faster you can expect your score to improve.
