The fallout from the Great Recession of 2007-2013 left a great many people who were once homeowners with fantastic credit and huge portfolios to renters with fair to poor credit scores. Now that the economy has stabilized and improved substantially, many of these same people are looking forward to buying real estate once again. Interest rates are still incredibly low, and new construction is booming. So what do mortgage experts say in answer to the question: " How do I improve my credit score?" While building a better credit score can take time as you build a better payment and credit history, here are some proactive tips for improving your credit score:
- Keep Your Balance to Credit Limit Ratios Low. Having credit cards can be very beneficial to building up your credit score, but only if you keep balances low to zero. If you owe close to your credit limit, one of the fastest ways to improve your credit score is to pay those balances down as quickly as possible. Mortgage lenders will tell you to keep credit balances between zero and 10% of the total credit limit.
- Pay off any collections balances or liens. Each unpaid collections account or lien against you is a derogatory mark on your credit. Print a copy of both your Equifax and TransUnion credit reports and make sure there are zero collections accounts or liens listed. If you see something that is incorrect or that is showing unpaid when you've paid it, dispute the matter, and have them taken off.
- Build a solid payment history. If you were over 30 days late on making a payment, make sure that from now going forward, all payments are made before companies report late payments to credit bureaus, which is usually after 30 days. Within about 6 months, you should see an improvement in your payment history. Each month that goes by with zero late payments will help improve your score.
- Do not close credit cards, but pay off debt. One might think that having too may credit cards would be detrimental to your credit score, but closing credit accounts can actually lower your score. If you do not wish to use a particular credit card anymore, either transfer the balance to one that charges lower interest or fees, or keep it at an open but zero balance.
- Avoid hard inquiries on your credit- Each time you try to apply for a new loan or line of credit, voluntary inquiries will be kept on your credit report. Numerous hard inquiries can negatively affect your credit score. Look at your credit report- According to www.myfico.com, the information included in your credit report is comprised of your personal identifying information, your trade lines, your credit history, credit inquiries, and your collections and public records (bankruptcies, liens, judgments, foreclosures, wage garnishments, and suits). Know what is in there. Once you understand what is making up your credit score, you can be proactive about improving it. The sooner you can start making improvements, the sooner you can realize the benefits of once again having great credit.