It’s no secret that having a high credit score has it financial benefits. It’s one of the gateways to qualifying for a mortgage loan, low interest rates, credit cards, and auto loans. While good credit is not the sole deciding factor to a mortgage loan approval, it certainly plays a massive role. Credit scores may seem like a foreign language to some…something that requires rocket science to calculate, but the truth is, credit scores are comprised of real, measurable factors that consumers have the power to change, with less effort than most people would realize.
While many lending brokers have reputable connections to credit repair services and can help you establish a plan to bring your score up, it’s not always necessary to hire a professional for that purpose. Whether you need to increase your score by a lot or a little, these tips will help you bring your score up with relative ease.
1. Find and Fix Mistakes on Your Credit Report
Pull your credit report and pour over all the details, to make sure there are no errors. Errors happen frequently and having them corrected, can easily make a world of difference. Ensure that all the items listed belong to you and not some other John Smith. Verify that the data has been reported accurately and that you’re not being dinged for having an open account when it has in fact been closed, or that your credit limit isn’t being reported as one number when it has in fact been increased. Have these items corrected, then order your report again to verify that it has been properly updated. It is not uncommon for errors to be reinserted into a report after correction.
2. Make All Your Payments on Time
The single most important factor in your credit score calculation is whether or not you make your payments on time. As long as you make your payments on or before the due date, for at least the minimum amount due, you will see an increase in your credit score. With the everyday bustle that life can bring, it can be easy to overlook due dates, which can be detrimental to a credit score.
One way to avoid having to make a late payment or missing a payment altogether, is to set up auto-pay. Most banks have the option to set up an auto-pay feature that allows you to schedule a specific amount for a specific day. Many companies also offer a small discount when you’re enrolled in their auto-pay program. If auto-pay in not an option for you, consider downloading a bill paying app, such as Mint Bills, that will remind you when your bill is due, and streamline the payment process, making it easier to pay your bills on time.
3. Decrease Your Credit Utilization Ratio
Another major factor in your credit score, is how much you owe on a credit card versus how high your limit is. Generally speaking, if your balance owed, is greater than 30% of the spending limit, your credit score will take a hit. For instance, if you owe $5,000 and your limit is $10,000 then you are utilizing 50%. The ratio is too high. But if you owe $2700 with a $10,000 limit, your utilization ratio is 27% which is below that 30% rule of thumb. If your credit utilization ratio is too high, there are two ways to remedy this:
1. Pay down your credit card to bring the ratio to less than 30%... or
2. Increase your spending limit, again, to bring the ratio to less than 30%.
The latter option is often the easiest option, as it literally takes a phone call to the credit card issuer who will happily increase the limit for loyal customers. You simply have to ask. (It should go without saying, that this option will require the discipline of not spending that new limit).
4. Keep Your Old Accounts Open
Another factor in your credit score calculation is the average age of your accounts. The older the account, the better. Even if you do not utilize the account frequently, keeping the account open will help bring your credit score up. Refrain from opening new accounts when possible, as that will bring your average age down, in turn dropping your score. This may be the easiest of the 4 tips, as it literally requires you to do nothing!
Now that you aware of what factors play major roles in your credit score calculation, take some time to review your finances and make some simple changes to improve your credit score. For further guidance contact us at PetreeRE or reach out to one of the lenders listed on our Partners page.