You’re starting to have some clear goals about your future, and you know that a good credit score can help you achieve them — particularly if those goals happen to include homeownership.
Your credit score not only controls your ability to get a mortgage loan, but it also affects your loan’s interest rate. A good credit score can, then, not only help you get your dream home but save you thousands of dollars over time.
So what can you do to keep your credit score where you need it? Or, if your credit score is lower than you’d like, what can you do to boost it a bit higher? We’ve got the information you need.
1. Understand How Credit Scores Work
Your credit score (also called a FICO score) is a three-digit number that ranges anywhere between 300 to 850. The score is seen as an indicator of how reliable you are when it comes to managing your money and repaying your debts, and a higher score is better.
While every lender has unique criteria when it comes to acceptable credit scores, a credit score between 670 and 739 is generally considered good, while a credit score between 740 and 799 is very good — and anything over 800 is excellent.
A score less than 670 means your credit is either only “fair” or “poor,” which is likely to restrict which lenders you can use and cause you higher interest rates on your loans.
Your credit score goes up and down a little all the time due to monthly changes in:
- Your payment history on your credit cards, car loan, student loans and more
- How much credit you’re actually using when compared to how much credit you have
- The type of debt and credit you’re carrying (installment loans vs. revolving credit)
- How many new credit accounts you’ve opened recently or inquiries you’ve made
Another factor that affects your credit score is the length of time you’ve been building your credit — which may not be something you can do much about. Generally speaking, a longer credit history will raise your score, while people who have just started building their credit may struggle to obtain loans.
2. Check Your Credit Reports for Mistakes
When you apply for a loan, lenders will generally pull your credit score from one or more of the three main credit reporting bureaus. These are:
When you’re working to build (or rebuild) your credit or you’re getting ready to apply for a mortgage, you can’t afford not to know what’s in those reports. One of the fastest ways to improve your credit score is to check all three reports for errors.
What kinds of errors can negatively affect your credit score? Look for:
- Old credit cards that were closed but still show up as existing accounts on your records
- Loans that you’ve paid off that still have an active balance on your record
- Any inaccurate reports that you either paid a bill late or missed payments entirely
- Debts that are inaccurately listed as “in collections”
Sometimes, just correcting the inevitable mistakes that creep into your credit reports over time is enough to raise your credit substantially, so be diligent about notifying each agency about the errors on their reports. Make sure that you confirm that the mistakes have been fixed by running new reports afterward.
3. Consider Adding Your Utility Bills and Other Payments to Your Score
Maybe you’ve struggled to keep a few of your credit bills paid on time in the past, but you’ve never missed a payment on your water bill, electric, gas or phone line, among other things. You think that speaks a lot to your reliability as a person and your ability to prioritize your bills — but none of these are automatically included in a credit report.
Experian Boost offers you the opportunity to add your history of positive payments on your utility bills, cellphone and streaming services to the credit report provided by their agency. If you make use of this feature, it could significantly help you with a lender who relies on Experian for their credit reports — and could possibly push you over the threshold of a score you need for a good loan.
4. Develop the Right Long-Term Strategy for Your Credit
Finally, the ultimate panacea for a poor credit score is time (and a little bit of focused effort). If you’ve made mistakes with your credit in the past, those become increasingly less important once you get on track and remain there for a while.
To effectively boost your credit score over time:
- Pay your bills on time, every time. Your payment history is the single biggest thing factored into your credit score, so this is essential.
- Pay off any bills that have gone to collection. If an old medical bill slipped your notice and ended up in collections, contact your creditor and make arrangements to pay it off as quickly as possible.
- Consider opening a few new accounts. Opening new credit will temporarily lower your credit score, so be careful. The idea is to create a bigger gap between the amount of credit you have available and how much you’re using, so you don’t necessarily want to make use of a new card just because you have it (unless you have no credit history and need to build one).
- Pay down your existing credit cards. If you have plenty of credit cards already but their balances are high, pay those cards down as quickly as possible.
- Ask for limit increases. Again, if you can raise your credit limit without raising your debt, that lowers the utilization of your overall credit and boosts your score.
- Don’t rush to close old cards. If you’re paying off those credit cards, you’re on the right track — but don’t be in a hurry to close them out. Again, you want to show that you have significantly more credit available than you’re using.
If you’re new to the credit score game, consider looking into a secured credit card or two. Because they pose no risk to the lender, they’re easy to obtain and you can quickly “graduate” to an unsecured card down the road.