Tips to Increase Your Credit Score
Updated: Jan 26
Is your low credit score holding you back from getting financed for a home? Follow these tips to bring that score up and make your dreams reality.
Credit plays a key role in home financing. There are steps you can take if your low credit is keeping you from the loan approval or interest rate you desire. The sooner you start, the sooner your dreams will become reality.
"Completing just a few suggested items took a client's score from 631 to over 700 in less than a month," - Kofi O. Okyere, President of O Capital Group.
Your credit score helps lenders determine how likely you are to repay a loan, and it influences how much risk they are willing to take on you. The higher your score, the more likely you are to be approved for a loan at the best rates. The following tips can improve your score and help you save money.
Tips to Improve Your Credit Score
The first tip to improve your credit score is to know it. Did you know The Federal Trade Commission requires consumers be provided one FREE copy of their credit report every 12 months from each of the three major credit bureaus? Get yours today!
Beware - there are many online websites that offer "free" reports. While some of these are reputable, many are not. Do your research before using them! Also, even commonly used sites are not always accurate.
In addition to knowing and tracking your credit score, the tips below will help you increase your score.
1. Pay Your Bills on Time
Payment history greatly impacts your credit score. In fact, payment history accounts for 35% of your credit score. This is because whether or not you have paid your debts on time in the past is a good indicator of whether or not you will do so in the future. Try your best to avoid the following, as they will negatively impact your credit score:
* Late Payments (especially over 30 days late)
* Foreclosures (in the past 7 years)
2. Pay Off Debt and Keep Balances as Low as Possible
Avoiding debt and maintaining low balances improves your credit score as it reduces your debt to income ratio. One tip to move toward this is to pay more than the minimum due. This will help you reduce outstanding debt at a faster rate.
Start small if needed. For example, if you have multiple credit cards you can select one target card on which to pay more than the minimum amount due. Continue making the minimum payments on the other cards. Once the card you first targeted is paid off, select a new target card on which to make more than the minimum payment. Continue this process until you have paid off your debts.
3. Keep Unused Credit Cards Open
You may be tempted to close a credit card you have paid off or don't use. Resist this urge! As long as the card is not incurring any fees and is not costing you money, it does your credit good to keep it open. This is because it increases your available income and lowers your DTI.
4. Don't Have Too Many "Hits" on Your Credit
Every time your credit is pulled, it causes a "hit" on your credit report. Too many hits, especially in a short window of time, can decrease your credit score. Applying for new credit or checking your credit score too often can cause your score to drop.
5. Dispute Inaccuracies on Your Credit Report
Pay attention to your credit report. They can have errors. In fact, the Federal Trade Commission published a study in 2012 that found 1 in 5 consumers have an error on their credit report from at least one reporting agency. Your credit score is based on the information on these reports, so it is critical that you pay attention.
Some errors to look out for are as follows:
* Incorrect name, address, or phone number
* An incorrect payment date that is causing you to have a false late payment
* Account information that belongs to someone else (This can happen when consumers share a similar name or in the case of identity theft)
* An account you closed that is still listed as an open account
* You are listed as the "owner" of an account, when it reality you are simply an "authorized user"
* A delinquency that was settled in the past, yet is still recorded as "unpaid"
* A late payment over 7 years old that is still reporting on your credit
* The same debt or account listed multiple times
* Inaccurate account balances or credit limits
Any error can negatively impact your credit score. If you find an error, it can be disputed. First, attempt to contact the company that provided the false information. This may be a bank, credit union, hospital, utility agency, etc. Many times, the company can verify their records and rectify the entry error. If they are unable to correct the error, you will need to contact the reporting credit bureau directly. If the error appears on multiple reports, you will need to dispute it separately with each reporting credit bureau (ie with Equifax and TransUnion).
When disputing, tell the credit bureau what you think is incorrect. You will likely need to dispute in writing. It may help to include a copy of your credit report that highlights the errors. Then, include copies (never originals!) of any materials that prove the item reported is an error. Send your dispute by certified mail to both the reporting credit bureau as well as the company that reported the false information. Be sure to request a return receipt from the post office, keep your receipt, and keep of copy of anything sent.
To make the dispute process even easier, The Federal Trade Commission provides consumers a sample dispute letter you can use to model your dispute.
The reporting credit bureaus are required to investigate disputed items. If the dispute is deemed "frivolous," it will not be investigated further. You will be notified of this in writing within five business days. If the dispute is not deemed frivolous, it will be fully investigated. This generally takes less than 30 days. If an error is found, the credit bureau will inform the company that reported the error so they can correct the information furnished on your credit report. When the investigation is completed, you should receive the results in writing. If your credit report has changed at all as a result of the dispute investigation, you should receive a free copy of your credit report as well.
Credit report errors are fairly common and can take some time to be resolved. It is best practice to keep an eye on your credit report and promptly dispute any errors that may arise.
6. Contact a Mortgage Broker
"The number one mistake our clients make is waiting too long to contact us," says Kofi Okyere, President of O Capital Group where home loans are made easy. A licensed mortgage broker can work with you to review your credit. They can give you specific details on what is helping your credit and what is hurting it. They can give you tips related to your specific credit report so you know what steps need to be taken to improve your score. "When a new client calls early in the home buying process, it can really help them out. For example, I had a gentleman call. He said he had a goal of buying a house, but not for at least a year or two. We were able to look at his credit. I suggested some action steps. We checked in every six months until he was ready. Now, he's a happy homeowner," Kofi Okyere recounts. Connecting with a mortgage broker very early in the process is essential in getting your credit where it needs to be. If you are interested in buying a home now or in the future, contact O Capital Group today for a free, no obligation consultation.
At O Capital Group, we make home loans easy!
Call today: (602) 492-8930
Keep Us Posted On Your Journey Have a tip that has helped improve your credit score? Let us know an accomplishment you've had, or a challenge you are working to overcome. We'd love to learn from your journey! Leave us a comment below. This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.