If you’re constantly browsing websites about homes for sale in Sea Pines and yearn for beautiful landscapes like these, it’s a good time to think about your credit score. Poor credit may result in an unsatisfactory mortgage and high-interest rates, which can lead to more expensive loans. There are plenty of things that contribute to improving your credit score, and in the end, it will help you fulfill your dreams of buying your perfect home.
What Is a Good Credit Score?
The easiest way to calculate your credit score is to check the FICO score. It is a way of quantifying and evaluating your creditworthiness. The scores range from 300 to 850, with scores from 670 to 739 considered acceptable. These rates are used in more than 90% of the credit decisions made in the U.S.
The scores are calculated from the following factors:
- Payment history; for example paying your credits on time (35%)
- Accounts owned; the amount of money you own (30%)
- Length of credit history; the longer you have another credit, the better (15%)
- Credit mix; a strong mix of retail accounts (10%)
- New credit; recently opened accounts (10%)
The first two are the most important. They make ⅔ of a total score.
Step One: Check Your Credit Reports
Before you start improving your credit, you have to know what you’re up against. Your credit score is based on the information that can be found on your credit report. Remember that you are entitled to take your reports from 3 major bureaus once a year.
Look at the reports closely and try to find any errors. Under the Fair Credit Reporting Act, you have the right to dispute inaccurate information. Look closely at everything you can find: from security numbers and birthdays to every payment date. One in four Americans finds errors in them. You may have never missed any credit card payment, but some other person with the same name did.
Step Two: Pay Your Bills On Time
If you want to have the home of your dreams, the one with big bedrooms, a bathroom for every family member, and the best built-in gas grills to make burgers for your kids every Sunday, don’t forget to pay your bills! No strategy will improve your score if you continuously miss out on your payments. By regulating everything on time, you are showing your bank that you are a trustworthy person, that honors arrangements. You can always set up an automatic transfer through your lender or financial institution.
Payment history is the most significant factor affecting the score. If you miss your payment for more than 30 days, you should immediately call your creditor. Ask them if he can prolong your payment without reporting it to the credit bureaus. If you are behind with your bills, try to pay them off as fast as possible, but remember that older payments have less effect than current.
Step three: Lower Your Credit Card Utilization
Credit utilization is the ratio of outstanding credit card balances to credit card limits. For example, if your balance is 500$ and your limit is 1000$, then utilization is 50%. To calculate, you should divide the balance by credit limit and then multiply by 100. The lower the percentage, the better and more attractive to lenders. As discussed before, lowering utilization shows that you are borrowing only what you can afford. The best utilization percentage varies, but everyone agrees that it’s best to keep it under 30-25%.
The second way to lower it is to ask for a bigger limit. The chances of approving your request will be higher if you have a solid track record of payment and a decent score. Remember that even if you have a limit increase, you still have to pay it off regularly.
Step Four: Be an Authorized User
You can become an authorized user by asking a reliable friend or family member to add you to their credit card account. You don’t need to use it or even see it; it will help you just by having your name on paper. This way works best if you don’t have much credit history.
When someone adds another authorized user, the account information will be reported on both. Just make sure that the person you chose pays every month on time. If not, this may backfire on you fast!
Step Five: Get a Secured Loan
Secured loans require some collateral. If you have some money for emergencies, you can take a loan and put it as a deposit. It is also possible without cash. You may use any valuable asset or property. If you are late with your payment, the bank will take some part of the deposit to pay it off. It’s low-risk, so it’s more likely to get even if you have a low credit score.
These tips will help you improve your score pretty fast. If you want to prepare for a loan the best you can, try to mix them all up. If you have a really low score, this will help you increase it by more than 100-200 points in just a few months. Go and check your scores and remember, don’t miss out on any payments!