Steps to improve your credit score
Your credit score tells your financial story. When it comes to life-changing purchases (like buying a home), your credit report is examined closely and plays a significant role in your mortgage interest rate as well as the type of mortgage you can secure.
If you’re unhappy with your current score, don’t panic! Consider the steps below to work towards your ideal credit score.
1. Get a copy of your credit report
First, find out your current score and overall credit information by obtaining a credit report. The Fair Credit Reporting Act (FCRA) requires each of the nationwide credit reporting companies—Equifax, Experian, and Transunion—to provide you with a free copy of your credit report once every 12 months. To order yours, go to annualcreditreport.com.
2. Report any credit inaccuracies
Once you’ve obtained your credit report, make sure your information is accurate. About one quarter of people who get declined for a mortgage have inaccuracies in their credit report.
If you do notice errors, it is your responsibility to fix them. The FTC provides step-by-step guidance on how to correct credit reporting errors on their website.
3. Pay your bills on time
Once you’ve made sure your credit report is accurate, the next step is remedying any behavior that would lower your credit score. A significant step to take is reliably paying all your bills on time, including credit card bills, student or auto loans, rent, utilities, phone bills, and more. Although it may seem obvious, it’s important to your credit score to pay your bills on time.
If you have trouble remembering payment dates, try setting up auto payments or a reminder in your calendar. If it’s a money management issue, try setting aside money on a regular basis in an account dedicated solely to paying your bills so you don’t run into trouble.
4. Pay more than the minimum
If you’re really looking to boost your score, pay more than the minimum payment on your revolving credits each month. When a lender is reviewing your credit report, you want to demonstrate that you are in good financial standing. Keeping your balance low and using credit responsibly can positively impact your credit score.
5. Plan ahead
Preparing to buy a home and building your credit takes time. Not only do you need to plan financially, you will also want to research neighborhoods and decide on what type of home you're looking for. If you are thinking about purchasing a home, it’s imperative that you start making a serious plan to increase your credit score. A poor score can sometimes take several years to remedy—make sure you give yourself enough time to get to where you want to be.