When it comes to getting approved for a mortgage, your credit score may matter more than you think. Why? Simply put, credit scores are a way to measure your financial health — and a good credit score signals to lenders that you’re responsible when it comes to borrowing money.
Taking steps to increase your credit score may make getting financing easier and potentially result in lower interest rates when you borrow. These five methods may help you improve your credit rating:
1. Set bill payments to autopilot
Credit scores are based on several different factors, with payment history being one of the most important. One of the best ways to increase your credit score is simply making sure your bills are paid on time each month. Set up automatic payments from your bank account to avoid late payments, which may ding your score in a big way.
2. Put credit card alerts to work
Another important piece of the credit score puzzle is your credit utilization rate, or the amount of available credit you’re currently using. Keeping your credit card balances low could help to increase your credit score, while a higher utilization may hurt your score. Experts typically advise keeping your credit utilization under 30%.
In order to keep tabs on your utilization rate, set alerts to notify you when your balance is getting close to your credit limit or if it passes a certain dollar amount. Then, you can know when it’s time to hold off on new purchases so your utilization isn’t negatively affected.
3. Request a credit limit increase
Asking your credit card company for a credit limit increase is another way to potentially increase your credit score. With more available credit, your credit utilization will lower—as long as you aren’t increasing your balance at the same time (i.e. don’t start spending more just because you have a higher credit limit).
4. Pay down balances, but don’t close older accounts
Lowering your credit card balances can improve your credit utilization rate and potentially boost your score. A simple way to accelerate debt repayment is to switch to weekly or biweekly payments. Even if you’re making smaller payments, you may cut down on the interest paid and chip away at the balance more quickly.
Another option for reducing interest charges is applying for a credit card with a 0 percent APR balance transfer offer. Remember that you’ll need to pay the balance in full before the promotional rate ends; otherwise, interest charges may still apply.
Once you zero out a credit card balance, don’t rush to close the account down. Part of your credit score is based on your credit history, and having older accounts on your credit report may work in your favor.
5. Remove credit report errors
Credit report errors, such as an inaccurately reported balance or payment history, can hurt your score. Try not to let them linger. All three major credit reporting bureaus allow you to dispute credit report errors online. If your dispute is valid, the error has to be removed or corrected, either of which may increase your credit score.
If home ownership is in your sights, learn more about how your impacts the buying process here.
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