When you apply for a mortgage, your credit score will be considered. Having a good credit score not only makes it easier for you to secure funds from a lender, but you’ll be offered a lower interest rate. The ability to confidently negotiate a purchase price on a new home, knowing that you can afford it feels wonderful.
Your credit score is calculated based on your history of using credit. This includes how much credit you use regularly, the types of bank accounts you have, how often you apply for more credit and your track record for making payments on loans and credit cards. With the importance of this financial assessment in mind, here are 5 actions your can take to improve your credit score.
Pay bills when due
Paying your bills on time should be intuitive. A reputation for settling your bills when they’re due suggests that you’ll do this reliably in the future as well. This means not just the phone and utility bills, but any loans and credit cards too. If you’ve fallen behind for any reason, be sure to catch up as quickly as you can. If you’ve inadvertently missed a bill, think about setting up automatic payments.
Check your credit rating
It’s a helpful practice to request a credit report every now and then, through TransUnion or Equifax, to verify your credit rating. This allows you to clean up your credit score by requesting that any misinformation is corrected. Its’ comforting to know that there isn’t something there that shouldn’t be that’s lowering your score.
Keep credit card balances low
While it may be tempting to spend close to your credit limit and make the minimum monthly payments on your card, this won’t reflect well on your credit score. Banks like to see a relatively low utilization of the available credit you have. An average utilization of less than 30% of your credit tells lenders that you can handle this financial tool responsibly.
Leave unused credit cards open
Would it surprise you to learn that leaving open old credit card accounts that you no longer use is a smart move? Provided you’re not paying annual fees to keep these cards active, having more than one credit card can improve your score.
Apply for new credit sparingly
We’re bombarded by so much advertising for loans and credit cards, that people can be forgiven sometimes for opening more accounts than they need. The key is to only apply for credit when it makes sense and not be lulled by a new card or loan with an introductory rate or other perks. Aside from the temptation this brings to overspend, too many requests for your credit report from different lenders can drive down your credit score.
It’s important to know what information your mortgage lender will see when they request a credit report. By taking a few simple steps, you’ll be well on your way to having a great credit score!
