Credit scores impact all areas of your life. From your car purchases to securing a 30-year fixed mortgage, your credit score is going to determine how much interest you pay and whether you receive financing at all. For those with a credit score of 750 or above, being approved for credit at a low interest rate is simple. However, if your credit score is under 580, you may find it difficult to obtain credit. If you are approved, the interest rate can be significantly higher, which costs you more in the long run.
What factors into your credit score? First and foremost, your ability to pay your debts on time and your debt to credit ratio. These two aspects of your credit history have a 65% impact on your credit score. Additionally, potential lenders look at how you have managed your credit, how many accounts you have open, and how long those accounts have been open. Different types of credit can factor in as well.
For instance, if you are looking to finance a new car, the lender is going to weigh your car payment history higher than someone who might be considering you for a home mortgage.
If you are looking to purchase a home in Colorado Springs in the near future, you need to start by addressing your credit score. Here are 3 repair tricks to help you take your credit from poor to fantastic.
Correct All Errors on Report
Nearly 8 out of every 10 credit reports have errors in them that could be negatively impacting those credit scores. Therefore, you want to check your credit report and look specifically for errors. These could include late payments, charge-offs, collections, or other items that are not yours. Negative items older than 7 years typically fall off your report on their own, but there may still be other errors that you should dispute.
To start disputing errors, you need to first get a copy of your credit report from each of the bureaus, Experian, TransUnion, and Equifax. Then send them your dispute by certified mail, with a copy of the error highlighted and back up documentation, if applicable.
As you dispute them, the credit agencies have 30 days to respond. Doing so can help to boost your score, as your report now more accurately reflects your credit history.
Pay Down Debt
Your debt ratio is the amount of debt you have divided by the amount of total credit you have available. If the ratio is greater than 30%, you are going to negatively impact your credit score. To lower that impact, pay down your unsecured debt to under 30%. Doing so will help lenders see that you are not overextended.
Another option is to ask your long-time creditors to increase your credit lines without checking your credit report. Not everyone will, but if they do, then you will see the benefit on your debt ratio.
However, you do not want to cancel any credit cards that are paid off, as the more credit you have available that is not being used, the better it reflects in your credit score.
Pay On Time, Every Time
Lenders look at your credit history to judge your ability to pay your debts and judge whether you are a good financial risk. Your payment history is the number one factor on your credit score. If your score needs to improve, start by paying every bill on time monthly. Even if you have late payments, their impact will start to fade as you build good payment patterns.
If you are having trouble meeting your obligations, talk with your lenders and work out an arrangement that will allow you to pay less every month or to pay one smaller lump sum to pay off the debt completely.
You would be surprised how many lenders are willing to work with you to avoid collections and other legal remedies. At the same time, working with your lenders can help to keep late payments off your credit report.
If you are considering purchasing a home, then the better your FICO credit score is, the less interest you will pay over the life of your loan. Therefore, it is important to know your scores from all three bureaus and make sure you have followed the tips above to give yourself peace of mind as you apply for a mortgage.
Elevation Mortgage can help you to determine how much you qualify for with a free quote, and assist you in finding the right loan offer to meet your needs.