Let’s say you are ready to begin buying a home. But you realize your credit score isn’t what it could be. Good news! You can improve your credit score. Because it is a score that reflects your money habits, it changes as your behavior changes. So, changing your credit score is a matter of changing your behavior. Here’s what you can do:
1. Pay Your Bills on Time
Your payment history is the biggest factor in your credit score. Set reminders to pay all your bills on time. Use autopay to ensure you never miss a due date. (Just make sure you have the cash in your account when the date occurs.) If you have a history of paying certain bills late, start paying them on time, and within a few months, you will see your credit score climb.
2. Lower Your Credit Balances.
Aim to use less than 30% of your credit limit—ideally under 10%. This is called your credit utilization ratio, and the lower it is, the better. So, if you are above 30%, make extra payments. It might require you to tighten your belt a little today. But the benefits are enormous. You’ll pay less overall on your debts, have more money in your pocket, have less stress related to your expenses, and be able to buy that house!
3. Don’t Close Old Accounts
The longer your credit history, the better. Keep older accounts in good standing, even if you don’t use them. Keeping an old credit card open can be a temptation. So, remove the temptation to use it by not carrying it, by cutting it up so you don’t have one to use, or even freezing it in a block of ice in your freezer.
4. Don’t Generate Hard Credit Inquiries
Every time you apply for new credit, a hard inquiry is made, temporarily lowering your score. If you are preparing to buy a home, don’t open any new lines of credit. Live with what you have.
5. Check Your Credit Report Regularly
Review your credit reports at least once a year at AnnualCreditReport.com and dispute any errors that were made on your account. Someone else’s behavior can impact your ability to get a mortgage. A mistaken credit hit can cause trouble and take time and effort to get off your account. Keep on top of it, so you don’t have to scramble during the home-buying process.
6. Diversify Your Credit Mix
Having a mix of credit types (e.g., a credit card, an auto loan, a student loan) can be beneficial if you manage them responsibly. Loading up on high-interest debt adds financial stress to your life and lowers your credit score.
7. Ask for a Credit Limit Increase
If your credit has improved and you have a good history of paying on time, request a limit increase on some lines of credit you aren’t using. Just be sure not to increase your spending—it’s a strategy to improve your utilization ratio, not to get you into more debt.
Remember, your credit score reflects your financial behavior. Change your behavior, and change your credit score!
