When it comes to improving your credit history and score, time is your best friend. If you’re one of the many people who have encountered credit challenges, it’s possible to increase your score and be in good standing again after only a year. Below are some helpful tips to get you started:
Pay Your Bills on Time
While this may seem obvious, many people don’t realize late payments are one of the most common causes for a drop in their credit score. It’s important that at least the minimum payment is made in a timely matter. According to FICO, 96 percent of people with excellent credit scores (those over 800) pay their bills on time. Keep in mind that your payment history is 35 percent of your credit score and that setting up automatic payments for the minimum amounts owed ensures your bills are always on time.
Pay Down Credit Card Debt
Prepare a plan to reduce your total credit card debt and your overall utilization. For example, if you have a $1,000 credit limit on a card, ideally you should maintain a balance of less than $300 and make timely monthly payments on the balance that is above the required monthly minimum payment. Your credit card utilization rate is the second-biggest factor that makes up your credit score at 30 percent. If your credit score is low because of high balances, paying these down is one of the fastest ways to improve your credit score.
Have a minimum of two credit cards and use them every single month, advises Alex Parker, sales manager at Home Team Mortgage – Ebby Halliday Realtors’ affiliated mortgage source. Maintain a balance-to-limit ratio of less than 30 percent (meaning no more than a $300 balance if you have a credit card with a $1,000 limit). Ideally just charge items and pay them off every month to avoid paying interest on a carried balance.
When creditors see that you’re actively using your credit cards but not carrying a high balance on those cards it will reflect very favorably on your credit rating. It shows them you’re using your available credit responsibly and not abusing it. In many cases, this is when you’ll see creditors increase your available balance. This could entice you into making a bigger purchase that you can’t immediately pay off. Avoid this if possible and the increased credit line will help improve your score.
Keep Track of Your Score
Since your credit can affect so many major purchases, it’s wise to make sure the information is correct. There are multiple websites that offer free credit reports. Once you have received your report, check it closely for errors. If you do spot an error, initiate a dispute in order to have it corrected or removed. Repairing incorrect information on your credit report can be a long and tedious process, but it’s well worth it.
Ask Your Credit Card Company to Raise Your Limit
Although it may seem counterproductive to helping your credit score, remember that utilization is a huge factor in your credit score. The lower your utilization rate, the higher your credit score will be. You can typically obtain a higher credit limit simply by calling your credit card company and requesting to raise the limit. The downside of a higher credit limit is the temptation to spend more. Thus, it’s important to remember to keep your balance of each of your revolving credit accounts below 30 percent of their credit limits.
Pay Your Bills with Strategy
If you have multiple cards open with debt attached, find your utilization ratio and pay off a higher amount to the account that has the higher ratio.
Account 1: There is $5,000 available credit and you have used $2,000 of the available credit. Divide 2,000 by 5,000 (2,000/5,000) and it equals .4. Move that decimal over two spaces to the right and you have 40 percent of your total available credit being used.
Account 2: There is $2,000 available credit and you have utilized $400 of the available credit. (400/2000) = .2, or 20 percent of your total available credit being used.
As mentioned above, you should only use up to 30 percent of your available credit. In this instance, you would want to pay down Account 1 quicker than you would want Account 2 paid off since Account 1 has a higher percentage, over 30 percent being used. Pay the minimum amount required by your account issuer on Account 2 and put down more into paying down Account 1.
If it’s affordable, paying your credit card bills twice a month can also increase your credit score since the account issuers typically only report your history once a month. This lowers your next reported amount due and can help increase your score quicker.
Considering purchasing a home? Home Team Mortgage Company, Ebby Halliday’s affiliated mortgage company, has a track record of building long-lasting relationships by providing exceptional service with competitive rates. With an office in each Ebby Halliday branch, Home Team Mortgage loan officers offer the convenience of one-stop shopping, coupled with expertise to ensure peace of mind for borrowers and agents alike.
For all your mortgage questions and needs, contact Home Team Mortgage Company.