Credit scores are one of the most important factors when it comes to buying power. As a buyer, having a good credit score means a higher likelihood of getting the mortgage AND the interest rates that you want. A good, or even excellent, score can save you thousands of dollars down the line. Do you feel like your credit score needs help? If the answer is “yes,” then let us help you!
1. Don’t Go Above 30% Credit Utilization
Keeping your credit utilization to 30% or under is the second most important factor in calculating your credit score—the first being payment history. Make sure to keep your credit utilization to 30% or below to keep your score high. If you are above 30% credit utilization, focus on paying off your card(s) strategically so that the total utilization is not over 30%.
2. Don’t Close Old Accounts
Closing an old account without an outstanding balance may be tempting, but this is inadvisable because it can throw off your credit utilization ratio (total debt/total available credit). If you close an account that has 0% credit utilization, but you have open accounts with utilization near 30%, your total credit utilization percentage will go up. This could lower your credit score by a few points.
3. Deal With Delinquencies
If you have accounts that are still open but have delinquencies, make efforts to get caught back up with those companies. See if they offer manageable payment plans for paying off the rest of your balance if you are past due and your minimum payments have gone up.
If an account has gone into collection, consider either paying off the account in full or offering a settlement to the creditor. This will also help to raise your score.
4. Apply For Higher Credit Limits
Another way to decrease your credit utilization ratio is to apply for higher credit limits, if you can. If you have a consistently good payment history with the creditor, and if your income has recently grown, you have a high chance of being approved for a higher credit limit. Once approved, the increase in credit will lower your credit utilization and improve your credit score.
5. Get Credit For On-Time Rent Payments
Credit scoring models do not always consider on-time rent and utility payments in their scoring. Older FICO models do not, but FICO 9 and 10 do. VantageScore, which Credit Karma uses, does as well. If you want to make sure your on-time rent payments are counted, you can use a rent-reporting service to have your payments counted towards your score. Here is a guide, with a list of rent-reporting services, so you can make sure your on-time payments pay off for you.
6. Vary Credit Types
If you only have one credit type consider opening up an account with a different credit type. If you only have credit cards, but no loans, you could sign up for a credit-builder loan that, with on-time payments, will positively influence your credit score. The impact of the loan, compared to the credit cards you may already have, will be stronger and have more weight on your score.
And Most Importantly!
7. Don’t Miss Payments
This one may seem too obvious, but it is so important to your credit score. It is actually the factor that all scoring models put at the top of their list, so it has the biggest impact on your score. If you have missed payments in the past, make sure to try to avoid that in the future. Look into payment plans your creditor may offer so you can catch back up and avoid missing more payments. If you haven’t missed a payment yet, congrats! You are right on track to an excellent credit score.
In Conclusion
Following our 7 tips for improving your credit score will help you greatly as a buyer. It cannot be understated how much weight credit scores have on the likelihood of approval for a mortgage. Make sure to follow these tips so you can have strong buying power, and can get the mortgage and home of your dreams!
iI you’re ever in need of additional buyer tips, then keep an eye out on our blog. We release monthly buyer tips as blog posts that are full of useful buyer information and tips from our network of trusted real estate professionals and advisers.
And if you want to see even more useful real estate tips like this one, then consider subscribing to our monthly newsletter. Each newsletter is guaranteed to have great buyer and homeowner tips from our experts, current Chicago area market data, and fun seasonal segments from our editors. Want to see a newsletter before you subscribe? You can check them all out right here on the blog!
If you find yourself needing additional information or help, then feel free to reach out to me directly via phone or email.
About Gerardo Zavala, Realtor
There is a true passion for connecting people with real estate that makes me fall in love with my career over and over again. While my title says, REALTOR® I think I am much more than that. For example, I am present and actively listening to my client’s needs, on the spot when things are urgent, and by your side to say “congratulations.” Most of my clients will say that I am a connection away from support no matter the situation, day, or time. In my opinion, customer service, educating the client on progress and next steps, and overall satisfaction are my top priorities. How can I help you?
