Last week we discussed some things you should or shouldn’t do before applying for a mortgage. One of the things you should do is build a strong credit history. However, what if you have an established credit history that isn’t as great as you’d like it to be. Here are 9 ways that you can improve your credit rating before applying for a mortgage.
1- Get a copy of your credit report.
The first thing you need to do is understand what your credit looks like. Obtain a free copy of your credit report at www.annualcreditreport.com. Look over your credit report to make sure that there is no fraudulent activity on there. Secondly, make sure there aren’t any surprises, like a $30 dental copayment that went unnoticed and went to collections.
2- Dispute any incorrect information.
Did your credit card company report a late payment in error. Is one of your student loans listed twice? You want to make sure that your credit report has no errors and that it correctly shows you credit history. Any errors can negatively impact your credit score.
3- Pay your bills on time
Paying all of your credit obligations is the best way to raise your credit score. The timeliness of your payments account for 35% of your credit score. If you have some late payments of your credit, length of time since those payments and continuing to pay on time will help to raise your credit score.
4- Pay off any collections, judgements or charge offs.
Do you still have that $110 cable bill from 5 years showing up as a collection on your credit report? While this may seem like an insignificant amount of money and water under the bridge, it will hamper your credit score from going up. Once it is paid and resolved you will see an immediate increase in your credit score.
5- Give your credit time to grow.
Your credit score will raise the longer you have a good payment history established. There is a big difference between having accounts in good standing for the last 4 months or the last 4 years. Longevity shows that you’ve responsibly handled your credit obligations over a longer duration of time and different life circumstances.
6- Have diversified accounts.
A great way to strengthen your credit score is to have a variety of credit obligations. It will help to have revolving accounts such as credit cards and installment loans such as student loans or an auto loan. Furthermore, having an installment that has been paid in full will help your credit score as well.
7- Watch your availability on your credit.
You shouldn’t have your credit ratios maxed out. Your utilization ratio is the amount of credit you have available vs. how much you have charged. It is recommended to keep your accounts below 50% capacity.
8- Limit the amount of revolving accounts you have.
Having too many revolving accounts is a factor that can cause your credit score to drop. It can also raise a red flag with your lender. You don’t want your credit report to look like you went on a shopping spree at the mall and opened up a credit card with every store you walked into.
9- Reduce the amount of inquiries to your credit.
An inquiry on your credit report is posted anytime you apply for new credit or your credit report is pulled by an institution. Your credit report reflects the amount of credit inquiries that you have had within the last 2 years. Having too many inquiries will lower your credit score.
Focusing on these 9 factors should help your credit score to increase. Most importantly make sure to not over extend yourself with credit obligations and always pay your bills on time.