You know your credit’s important. You understand how the major credit bureaus use the ‘4 C’s of credit’ measure your score. And, you get why your credit score influences the cost of your loan.
But the real question is, how do you improve your credit score?
You want to aim for a score of between 750 and 850. This is considered “excellent,” helping you secure the lowest interest rate possible. But an excellent score doesn’t happen overnight. The following tips can help you start making improvements right now and over the long haul.
Right Now: Check Your Credit Report for Errors
Mistakes happen. If there is an error on your credit report, such as an outstanding bill that you’ve actually paid off, this can significantly reduce your score. This is why the first step to improving your credit score should always be taking a close look at your credit report.
If you identify any errors, make sure to address the mistakes in written form. Submit a written letter to the credit bureau with documentation to prove the mistake. Make sure to date the communication and save a copy. You may have to follow up and this written trail can be extremely useful.
Right Now: Pay Off Outstanding Debts
Carrying a balance on your credit card? Have a loan on which you’re slowly chipping away, such as a student loan? Paying off your outstanding debts is a good way to reduce your debt-to-income (DTI) ratio. This can help substantially increase your credit score.
Right Now: Lower Your Credit Utilization Ratio
Your credit utilization ratio refers to how much of your available credit you are using. Credit bureaus and lenders prefer to see a low utilization rate. It may be you’re already pre-approved for a higher credit card limit.
If you are, your credit card company won’t need to run your credit in order to increase your limit. They will just do so automatically, which instantly reduces your credit utilization ratio.
Long-Term: Get a Credit Card
After the Recession in 2008, a lot of individuals stopped using credit cards or choose to never start. This is especially true among Millennials. The problem is, if you aren’t using credit, you can’t build a strong credit history. Unless you have hundreds of thousands of dollars in the bank, you’ll need credit to make any major purchase.
So, if you don’t have a credit card, get one. Start by just using it to pay regular monthly bills, like your PG&E or your cellphone bill. This will help start developing a credit history without racking up debt.
Long-Term: Make Payments in Full and on Time
To prove your trustworthiness as a borrower, you need to show your trustworthiness. One of the best ways to build a strong credit history is to make all of your monthly payments in full and on time – every month. Plus, carrying a balance just costs you more in the long run.
Ready to look at your credit score and find out where you stand? Talk to a loan officer today.
WRITTEN BY
Katrina Turner
Katrina Turner works for Fairway Sound, one of the top branches of Fairway Independent Mortgage Corporation.
