An important step to finding a home, whether you’re renting or buying, is ensuring that you have a good credit history. Below are seven tips for improving your credit score.
- Request a copy of your credit report and make sure it’s correct. Your credit report illustrates your credit performance and it needs to be accurate so you can apply for loans, such as a mortgage. Everyone is entitled to receive a free copy of his or her credit report annually from each of the three credit reporting agencies but you must go through the Federal Trade Commission’s website at www.annualcreditreport.com. Because there are three different reporting agencies, you’ll get three different reports. These reports will always be free if you get them using the link above, but you may have to pay for the numerical credit score itself. While it’s important to check your credit score, it’s not always necessary, and the credit score you receive online may be higher than those that mortgage lenders pull because the criteria mortgage lenders use is more stringent. Your credit score is only one part of your overall credit history. Other factors include how much credit you have, how much you owe, and how often you pay.
- Keep balances low on credit cards and ‘revolving credit.’ Racking up big balances may hurt your scores, regardless of whether you pay your bills in full each month. You often can increase your scores by limiting your balance to 30 percent or less of a card’s limit.
- Set up automatic bill pay. According to a report published by the American Bankers Association, payment history makes up approximately 32 to 35 percent of your credit score. The longer you pay your bills on time, the better your score may be. Avoid missed payments by setting as many of your bills to automatic pay as possible.
- Apply for and open new credit card accounts only as needed. Keep this in mind the next time a retailer offers you 10 percent off if you open an account. If you need a new line of credit, don’t jump at the first appealing offer; take your time and compare rates and fees offered through mail solicitation, online, or at your local bank.
- Don’t close old, paid off accounts. According to FICO, closing accounts can never help your score and can actually end up damaging it.
- Pay your rent and utility bills on time. If you don’t have a traditional credit score, paying your rent and utility bills on time each month can help demonstrate that you show a pattern of meeting your financial obligations. This can include a 12-month history of paying bills on time like rent, utilities, internet, phone, and insurance.
- Talk to credit counselors if you’re in trouble. Using legitimate, nonprofit credit counseling can help you manage your debt. But be wary of popular credit repair services because some of them can actually make matters worse and end up hurting your credit score. For more information on debt management, visit the National Foundation for Consumer Credit’s website at www.nfcc.org.