Keeping a spotless credit history can be tough, but if you’re hoping to buy a home, maintaining or improving your credit score is well worth the effort. Factors like your FICO® score help lenders determine your creditworthiness, which in turn affects what mortgage rates, loan amounts and terms they can offer you. Luckily, there are some simple things you can do for your credit health.
1. Check your credit regularly and report any errors.
Before you can improve your credit, you’ll need to know where you stand. Thanks to the Fair Credit Reporting Act, you’re entitled to one free credit report per year from each of the major credit reporting agencies, so you should order one at least that often. Review your report for errors and challenge anything that looks incorrect. You may find anything from false accounts to loans or credit cards that you paid off years ago. Keep in mind that some problems, like bankruptcy, may stay on a credit report for 10 years or longer. To request your credit reports, go to www.annualcreditreport.com.
What is a good credit score?
Lender requirements vary, but according to the Fair Isaac Corporation (the company that invented the FICO® score):
> 800 = Exceptional credit
740 – 799 = Very good credit
670 – 739 = Good credit
580 – 669 = Fair credit
< 579 = Poor credit
2. Choose old credit over new credit.
Although using credit cards responsibly should improve your credit, opening new accounts can lower your average account age, resulting in a lower overall credit score. Getting a new credit account or closing an old one doesn’t wipe the slate clean, and sometimes it can hurt you. Whenever you can, choose to fix the problems with your old account instead of creating a new one.
3. Pay your bills on time.
The better record you have for paying bills on time, the better your credit score. Even one month can make a difference. If you can, pay your bills early. It may not directly improve your score, but it could help you pay down your debt faster and it gives you time to react if your check is delayed in the mail or misprocessed. Make sure that you are actually paying off your bills, not just moving the debt around.
4. Don’t max out your credit cards.
A large outstanding debt can negatively affect your score, so keep your balances as low as you can in the months before applying for a mortgage. Instead of using one primary card and leaving the others alone, spread your payments out so that the usage on each of them is about even. A good rule of thumb is to keep credit balances below 10% of your credit limit, if possible.
5. Keep old accounts open.
Closing old credit card accounts can negatively affect your credit score in two ways. First, it can shorten the length of your credit history, making you look less reliable. Second, closing accounts reduces the total credit available to you, which makes any balances you do have appear larger. If you do need to cut up some cards, get rid of the ones you opened most recently.
Questions? If you’d like to know more about the mortgage process, prequalify for a loan or find out how much home you can afford, contact our affiliate, HomeAmerican Mortgage Corporation, at 866.400.7126 to speak with a loan officer.
