If you want to buy a house and you’ll need to take out a mortgage, getting your credit score as high as possible should be a top priority before you begin searching for a home. Your credit score will be used to set your interest rate, so be sure to stay on top of it.
Check Your Credit Reports for Errors
Start by requesting copies of your credit reports from the three credit bureaus: Equifax, Experian and TransUnion. Check them for inaccurate information and dispute any errors. It’s important to check all three credit reports since the bureaus may have different information.
Pay Down Debt
Your credit utilization ratio is calculated by dividing the sum of your credit card balances by the sum of your credit limits to arrive at a percentage. A lower utilization ratio will translate into a higher credit score.
If you’re using a lot of your available credit, work on paying down your debt. You can do that by cutting expenses, looking for a second job or side gig, applying gifts or income tax refunds to your credit card bills, selling some of your belongings or consolidating high-interest credit card balances into one loan with a lower interest rate.
Pay Bills on Time
Your payment history is another important piece of your credit score. Late payments, accounts in collection, bankruptcies and other derogatory marks can stay on your credit report and affect your score for different periods of time. Pay your bills on time each month. If you have any past-due bills, pay them off or contact the companies and work out repayment plans.
Keep Old Accounts Open
Credit bureaus consider the length of your credit history when calculating your score. If you have old credit cards that you don’t use often, don’t close the accounts. That would shorten the length of your credit history and would also reduce your available credit and increase your credit utilization ratio. Keep old accounts in good standing by making occasional purchases.
Be Careful With New Credit
Applying for a new credit card could be helpful, especially if it would allow you to transfer high-interest balances to take advantage of a lower rate. Just don’t apply for too many new accounts in a short period of time. That could hurt your credit score since lenders might think you were struggling financially or couldn’t handle credit responsibly.
Give Yourself Time to Work on Your Credit
The length of time it will take to raise your credit score and how much you will be able to increase it will depend on your current score, your payment history, your debt level, your income and how much you can afford to apply toward existing debts each month. Think of boosting your credit score as a medium- to long-term endeavor. Create a plan to address any problems so you can achieve your goal of owning a home.
