Everyone wants the house of their dreams, but they are always hard to attain. Having bad credit can do more than make the buying process difficult, it can put the processes to a screeching halt.
A higher credit score will be your greatest ally in getting you a reasonable mortgage. So if you are shopping around for a mortgage, it’s better to try and raise your credit score as fast as possible. Here are some steps that can help you achieve a higher credit score fast.
What is Credit?
Credit in this case refers to a lender borrowing money and repaying the debt with interest. The most common way to build up credit is through a credit card. With a credit card, you are spending the money of the lender and you are to pay the money back on time. Otherwise the interest increases and your credit score will lower.
What is a Credit Score?
A credit score is a number to determine a person’s credit worthiness between 300 and 850. It is based on credit history, payment history, level of debt, and more.
Have a Positive Payment History
Payment history is usually the largest factor contributing to your credit score. It makes up 35% of your FICO score, which most lenders will probably refer to. If you have a clean payment history then your credit score can really benefit from that.
Unfortunately, late payments stay on your FICO scores for up to seven years. This may seem like a lot, but you don’t have to wait seven years to improve your credit score.
If you have missed payments in the past, you can change this trend immediately and start paying off on time. Eventually this will reflect heavily on your credit score.
An ideal solution to that is to put all your regular payments, like your utility bills, on automated monthly payment. You won’t have to keep continuous track and miss any because of human error, and they won’t be late.
Manage Your Debt
The next significant chunk of your credit score is your debt. It makes up for 30% of the FICO score. The easiest and fastest way to fix it is to pay your credit card debts off in a timely manner.
An even better approach will be to pay off your credit card as soon as they are charged.
If your data is pulled mid-month, the current debt might push down your score a bit. It’s useful to note that the credit reporting agencies don’t have access to your income information. So they use your credit utilization to figure out your debt-related score.
Simply put, if your credit limit is $20,000 and your balance is $5000 that makes your utilization ratio at 25%, which is good enough. People with the most stellar credit scorers usually have a utilization ratio of around 10%.
It might be better to try and have less expenses in total if possible. Like subscriptions or applications that have monthly payment you might not often use.
Credit Card Management
A big mistake that some people make is shutting down their credit cards to raise their credit score fast. This can actually lower your score because when a credit card shuts down, it takes its history and credit limit with it.
Keep your credit cards in circulation, and use them.You should use them less frequently and pay them off as soon as possible.
Small subscriptions like Netflix that are automatically deducted from your credit card can be best for that. They will keep your credit card effectively running and help you build good credit. It is a bad idea to apply to increase your credit limit while your credit is not at your goal.
If your credit is low, applying for a new credit card can invoke a “hard inquiry”. This lowers your credit score further and stays for two years.
Challenge Discrepancies in Your Credit Report
This should be one of the first things you do when attempting to fix your credit. Credit reporting companies are liable to give you one free credit report a year, it’s a detailed breakdown of your credit history.
By checking out this report, it can help you spot the areas bringing down your credit score. You can work on those factors to achieve a higher credit score.
According to an FTC study, one in four credit reports had errors with a noticeable impact on the credit score. No matter the mistake on the report, you can challenge them.
Challenging credit discrepancies also works for removing late payments from your credit score.
People managed a jump up more than 80 points in their credit score, in a single month due to them disputing late payment discrepancies with their credit reporters. It also works with any score drop you incurred because of hard inquiries from applying for credit cards.
Pay Collection Agencies
This is a bit of a legal and ethical grey area. If some of your debt has been transferred to collection agencies, you can contact them about the full payment and removal of that debt, but that doesn’t frequently happen.
This is because the agencies are expected to report the accurate financial histories of the debts they are managing. If the debt cannot be removed from your credit history, paying them once in full won’t help your credit score.
In this case, you can work out a schedule with your collection agency.
Become an Authorized User
This works wonders for people with no or very little credit history. While people with bad credit who want to get a higher credit score, it is marginally successful.
If you have a family member or friend with a good credit history, you can try becoming an authorized user of their credit cards. Even if you don’t use the card at all, it helps give your credit score a boost.
Association with a strong account with a good credit score also gives your credit a bit more credibility.
With some financial discipline and the use of these tips, you can effectively increase your credit score.
It may not be instant, but you might see the improvement in two to three months with proper management. When your goal is to build your score, time is on your side. The more you do to improve your credit, the more time it can take.
Any extra amount you spend when going for fast credit repair for a mortgage will be worth it. With a better credit score, you might be able to qualify for a decent mortgage. It will also save you from some added insurance expenses when you are qualifying for a mortgage. In the long run, you will be able to save much more when you have a higher credit score.
After you’ve taken these steps to increase your increased credit and you are ready to buy a home, contact one of our agents to get that process started. We can help you through the buying process and get you the home of your dreams.