Improve your credit score
If you’re planning on buying a home in the next few months, you are probably facing more than a little work — especially if your credit score isn’t in good shape. While you can’t change your credit score overnight, you can put some steps into place to raise it over the duration of two or three months. Hence, start now and you may be ready to purchase this Fall and be in your new place before the big holidays! Here are some basic tips.
Tip 1: Take a good hard look at your credit history.
Credit scores are drawn from information in your credit history, so anything that’s wrong, even from something way back, can possibly still bite you today. Most folks advise you to visit annualcreditreport.com and pull a free copy of your credit history. But there’s another great website called creditkarma.com. Check for mistakes and call the places if you do find a mistake. Hint: don’t be angry when you call; assume the role of “I am seeking to purchase a house and I need your help” to get this error cleaned up.
Tip 2: Lower your utilization ratio.
Teach yourself a little about how credit scores are calculated. (Visit the Buying tab of this website) to find some great information). One factor is “Amounts Owed,” which determines about 30% of your credit score. What those folks look at is how much you OWE on credit cards versus how many DOLLARS are made available to you (your credit limit). Hence, if you are allowed $5,000 on a certain credit card and you keep it maxed out most of the time, that’s not so good. It’s much better if you only keep maybe $1,000 or at the most $1,500 charged on that $5,000 card. This whole idea is called the “utilization ratio” — how much of your credit limit are you utilizing each month?
So how should you accomplish that low balance? Well, (obviously), the first step is to pay down your credit cards as faithfully as you can. Your payment history accounts for 35% of your credit score. But if you can’t exactly do that, consider shuffling the burden to another card. Be careful here, of course — but if you have a high balance on one card and you haven’t put much of anything on a second card, shifting some of the balance to the less-used card might help. (You have to pay it, too, of course: no free lunch…). And a second step you might take is simply to call the bank or credit card issuer and ask them to raise your balance. But, again, obtaining a higher credit limit does not mean that now you can go out and buy that new 55-inch HDTV you’ve secretly been wanting…
Tip 3: Refresh a card you haven’t used for years…maybe….
If, after reviewing your credit history, you are reminded that you used to have a Mastercard that you haven’t used for years, find that puppy. Call to make sure that the credit line is still “open.” Getting that old account refreshed will increase the amount of available credit open to you (a good thing). It might also extend your credit history (another good thing).
Okay, here are two things not to do. Don’t open a new account – that definitely will lower your credit score. And don’t close any accounts, because that would negatively impact your “utilization ratio” as described above. Oh, and don’t go any freaky and buy a lot of expensive stuff like furniture for the house you haven’t even bought yet, or a new van to help you with your upcoming move…
Give Becky or me a shout if you’d like more information on the home-buying process: either of us would be thrilled to help you. And let me just say — with a wink to your upcoming great credit score and new house — an early Happy Thanksgiving to you!!!
