If you’re getting ready to buy a house, your credit score will have a major impact on the interest rate you’ll pay for your mortgage. Even tiny increases can have a significant effect. Lenders often have firm rules about credit scores. For example, they may only offer their best rates to borrowers with a score of 690 or higher. If your score is 687, it could cost you thousands of dollars in interest over the life of your loan.

However, you can take steps to improve your credit score. Many variables affect your score, and it’s hard to single out actions that will increase your score by a specific number of points. However, there are some general tactics you can use:

  • Pay your bills. This is obvious, but it’s still the number one factor affecting your score. Pay all your bills on time whenever they are due.
  • Keep credit balances low. If your cards are maxed out, that’s a big red flag. You should only use a portion of the credit available to you. If you need a target, try to keep your balances at 30 percent (or less) of your overall lines of credit. Be careful about closing accounts (more on that below).
  • Don’t open new credit. It’s important to have a credit record, but don’t open new accounts unless you absolutely need to.
  • Those are general rules of thumb, but what happened when you’re looking for a house and just need to bump up your credit score a few points? Try these techniques:
  • Clean up your credit report. Pull your credit report (you can get one free every year at www.annualcreditreport.com) and take a hard look at it. If you like, you can use online credit score estimating tools to get an estimate of your score. Check your report for errors, like late payments that were actually paid on time, accounts that aren’t yours, or debts that are older than seven years (bankruptcies can remain for 10 years). If you discover mistakes, call the credit bureau and the creditor. If you can prove there’s a mistake, they have to fix it within 30 days.
  • Work with your credit cards. Paying down your credit cards will help improve your score. You can also transfer balances from a maxed-out card to other cards to “even out” your usage, to get closer to that 30 percent. Don’t close unused accounts, because that can affect your “utilization rate,” which is the amount of your total debt divided by your total available credit. If you do close accounts, keep the oldest ones open, so that you have a longer history of credit use. If they have a high interest rate, pay them off and don’t use them, but keep the account open.

The important thing to remember is that you can improve your credit score. You need to establish a clear picture of what your credit is like today, and look at options to improve your score. You can find out more about how your credit score and buying a home by contacting us at mortgageperspectives.com or calling 407-733-6425. We’ll be happy to help you evaluate your score and see what mortgages may be available to you.

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