Your credit score plays a critical role when you’re buying a house or applying for a loan. In a competitive market, it’s crucial to have a high credit score. If you’re searching, how you can improve credit score, you’re in the right place. While you cannot fix your credit report overnight, you can take specific steps to improve the situation in due course of time.

Credit Score

In this article, we’ll discuss proven ways and strategies to boost your credit score before you seek mortgage approval from a lender.

What is My Credit Score?

First of all, how do you know about your score?

You can pull out a free credit report from any of the major credit reporting bureaus. As a consumer, you’re entitled to one free annual report. That’s the easy part!

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    What’s tricky is the difference between the reports you receive from different companies. There can be a slight difference between each credit report, even if they are requested on the same date. The general idea is to take the average of the three numbers and see what comes up. Different credit reporting bureaus might be considering different metrics to calculate your score. FICO score is viewed as the standard, and for that, your payment history, credit utilization rate, and a few other factors are considered. We’ll discuss these aspects in detail here.

    In some cases, you discover flaws such as settled debts that are not reported correctly. Credit repair firms can help you negotiate and remove negative items from your credit report. You can also contact the financial bureaus and have the information removed. However, working with a credit repair company is more useful as they are familiar with local laws and common issues that can reduce your score.

    How to Improve Credit Score

    How to Improve Credit Score before Applying for a Mortgage?

    The credit score ranges from 300 to 850. Any score above 670 is considered a good start. 720+ can get you better mortgage terms with attractive interest rates. For anything less than 600, you might end up paying thousands extra for your house.

    You can use the simple FICO calculator to check your savings on the entire lifetime of your loan product.

    Let’s say you’re buying a house worth $250,000 with a current score of 620. Notice how your savings increase as your credit score shifts.

    Loan Value Credit Score Savings
    $250,000 640-659 $28,000
    $250,000 660-679 $50,000
    $250,000 680-699 $60,000
    $250,000 700-759 $69,000
    $250,000 760+ $79,000

    How to Fix Credit Fast in a Short Time?

    Securing a perfect credit score may seem like an impossible task, but it’s still helpful if you can add a few extra points. Now let’s dissect your credit report. There are five basic sections.

    Credit Maturity:

    Lenders want to know your financial history. How long have you been borrowing money? The longer the history, the better it is for your score. College students often don’t have an established history, and credit score calculations are impossible without a record. Your credit history has a 15% share in your score calculations. While you don’t have direct control over the past, you can try one thing. Don’t close any old credit accounts. Pay them in full and let them contribute to your history.

    Credit Inquiries:

    When searching for a mortgage, don’t apply for other loans. Don’t request a vehicle loan, even if you can afford to make all the payments. Your recent loan applications will have a direct impact on your credit report, and an increasing number of applications can reduce your score. Lenders can reject your mortgage application because of the growing number of credit inquiries.

    Credit Utilization Rate:

    The credit utilization rate describes your spending against the available amount. You can try this simple formula:

    Utilization Rate = Spending/Available Credit

    Let’s say your credit card limit is $10,000, but your monthly spending is less than $2,000. That means the utilization rate is 20%. For a better credit score, your credit utilization rate should be less than 30%.

    There are two ways to reduce this percentage. Either you need to reduce your spending or increase the amount of credit available to you. Both steps can help you improve your credit score. However, be extra careful with increased credit limits. For many people, such relief can create additional debt and stress.

    Credit Mix:

    Before approving your mortgage application, lenders will look into the types of debts you have. Overall, it’s a good idea to have 2-3 examples of loans. However, non-payment of different debts can put you in a difficult situation.

    Recent Payment History:

    How many paid debts do you have? Student loans? Timely made rental payments or other loan installments?

    As per FICO calculations, your payment history makes up 35% of your score. That’s why it’s important to avoid late payments, especially when you’re applying for a mortgage. Keep a timer with you and ensure that all debts (and bills) are paid as early as possible.

    Action List ( Improve Credit Score) :

    • Review your credit report and check for false information, or discrepancies, Many people are surprised to see the incorrect information. Still, you can get it corrected and have your credit score revised.
    • Pay all your debts on time. There is no sure formula to improve your credit score, but timely payments can help you achieve your goal.

    Aniya Equity LLC is a residential redevelopment firm in Tennessee. Our team helps homeowners by buying houses as-is for a cash price. For more assistance, please contact us or give us a call and our team will guide you.

    Sell Your House Fast | We Buy Houses

    For a free, no-obligation consultation call: 615-669-1610, or Fill Out This Form For Your FAIR Offer