Well, You may be wondering whether or not your credit score is where it needs to be to be able to buy a house.
You might also be wondering whether or not your credit score will help you get the best interest rate possible.
Credit scoring is a confusing topic and I see many smart people with good intentions do the wrong things that actually lower their credit scores and hurt their chances of getting a home loan.
Well… I have some good news because I’m going to share 3 easy tips to raise your credit score fast…
If you’re thinking about buying a home in the near future it’s important to get your credit score in the best shape possible.
There are some low and no down loans that are possible to get with scores of 580 or above and frankly, a 580 score is considered pretty low but it definitely opens up your options if you can get your score up as high as you can.
I’ve been helping people get home loans since 2002 and part of my job as a mortgage advisor is to help advise people on ways to get their scores in the best shape possible.
Understanding how credit scores are calculated can help you improve your scores.
Here are the five main factors that the credit bureaus use to come up with your actual score
Your payment history is the biggest factor in how high or low your credit score is and it accounts for 35% of how your score is calculated.
Your payment history speaks to how responsible you are at paying your bills on time. This is critical…even a late payment on a 15/mo. credit card can lower your scores significantly.
In the credit bureaus eyes a late payment is anything 30 days or more late so don’t freak out if you are 15 days late and get charged a “late fee” only 30-day lates mess you up.
Your Credit utilization ratio accounts for 30% of how your score is calculated: Your credit utilization ratio represents the percentage of available credit you’re using compared to the high credit limit you are being offered. A credit utilization ratio of 30% or less will help your credit score significantly.
The Length of your credit history accounts for 15% of your credit score: The length of your credit history can work in your favor, especially if you’ve paid your bills consistently over time.
This is the one category where older consumers have an advantage over their younger counterparts, as someone with 10 years of timely payments might be a more ideal loan candidate than someone with only one year of accounts under his or her belt.
Your New credit accounts account for 10% of your score: When you open too many new accounts simultaneously, it sends the message that you’re relying on borrowing to keep up with your expenses. It’s generally better to open new accounts slowly over time, as opposed to opening a bunch all at once.
Your Credit mix accounts for 10% of how your score is calculated: Not all debts are created equal. Credit bureaus make a distinction between credit card accounts versus student loans, car loans, and mortgages.
As you can see, certain factors play a larger role than others in determining your score. That’s why it pays to focus on the first two categories – your payment history and credit utilization…these two categories make up 65% of how your score is determined.
With that in mind, here are the 3 easiest tips I know of to help raise your score fast:
Tip #1. Pay off a chunk of your existing balance:
Having a credit card balance won’t just cost you more money in interest payments; it’ll also drive up your credit utilization ratio. Say you have $10,000 in available credit along with a nagging $5,000 balance you’ve yet to pay off.
Even if you don’t charge another dime on that credit card for the foreseeable future, as long as that $5,000 balance remains, your credit utilization ratio will be above that ideal 30% threshold.
In this case it’s 50%. Paying off your existing debt, or at least paying down your debt to below 30% of the high credit limit offered is one of the very fastest ways to bring your score up.
If you don’t have the cash available to lower your balance I would encourage you to take inventory at home and see if there’s anything you can do without and sell. The sooner you bring down your credit utilization ratio, the quicker your score will climb.
Getting those balances below that 30% threshold is a VERY effective way to raise your score fast
Tip #2. Ask for an increase in your credit limit
Another way to improve your credit utilization ratio is to request a higher credit limit. If you’re a long-standing customer with a decent credit history, there’s a good chance your credit card issuer will comply.
In fact, in a recent CreditCards.com survey, 89% of consumers got their credit limits increased simply by asking.
If asking your current credit card company doesn’t work, your next best bet is to try opening a new credit card.
Tip #3. Become an authorized user on somebody else’s card.
If opening a new credit card isn’t an option for you, you might try seeing if someone else will add you as an “authorized user” to an existing account that is in good standing.
This can help in a number of ways. First, as long as the initial cardholder pays his or her bills responsibly, those on-time payments will beef up your record.
Additionally, the credit limit the card in question comes with will get added to your existing limit, which can help bring down your credit utilization ratio, you can let the person know that you don’t actually need to use the card you become an authorized user on to have it help your credit; you just have to choose the right person to partner up with.
So there you have it, now you know how the credit bureaus gage credit scores and you have the 3 easiest tips to raise your credit score fast which are by keeping your credit utilization ratio at 30%, asking for an increase in your credit limit and becoming an authorized user on a financially responsible family or friends credit account.
Though building credit typically takes time, these moves will help give your score a rapid boost.
My goal is to help make your home buying experience a great one and it doesn’t cost anything to talk…so give me a call or shoot me an email and check out the helpful links down below
Thanks for tuning in
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Kurt Nilsen-Mortgage Advisor
Sunrise Mortgage Group
NMLS # 251455
Giving Knowledge & Confidence To Home Buying