Looking for ways to improve your credit score? Since it’s one of the most important factors in qualifying for a mortgage, this is a question we hear a lot. Here are the main steps we recommend clients take to boost their credit score to help them get a better loan. 

Step 1 to Improve Credit Score: Check It

This may sound silly, but the first and most important step is to take a look at your credit score and your credit history. There are a few reasons for this. 

First, it gives you the foundation, a baseline. This is the number you’ll compare to over the next few weeks or months. 

Second, it gives you a chance to find anything wrong. For example, maybe you’ll see that the credit history doesn’t show a student loan as paid off, but really you paid it off a few months (or years) ago. 

Or maybe there’s a credit card you don’t recognize and need to investigate. There’s always the chance someone opened a new account in your name, and if they charge up the card and don’t pay it, your credit score will take a hit. 

Now that you know what’s on your credit report, it’s time for step 2. 

Step 2 to Boost FICO Credit Score is to Pay Bills on Time

If you’re already paying your bills on time, that’s great. You can move onto Step 3. But if not, realize this is an important thing to focus on. 

Credit is a way for lenders to see how well you manage your debt and potential debt. If you miss payments and are carrying a lot of consumer debt such as credit cards, your credit score suffers. That is telling creditors that you are risky and may not pay them back. 

Good to go? Let’s move on. 

Step 3: Pay Off Your Debts

If you have some cash, consider paying off recurring debt. Since creditors don’t like seeing those recurring debts, your credit score tends to increase as you pay them off. 

Does this mean you can’t have any debt? No – by definition, a mortgage is a type of debt. Car loans are a type of debt. These are fine and very common. But not all debt is treated the same, so pay off the “bad debt” such as credit cards. 

Oh, and don’t just keep moving debt around. Sending it from one credit card to a 0% card every year or 2 doesn’t give a good impression to lenders. 

Step 4: Increase Your Credit Limits

Something to consider is asking your current creditors to increase your credit limits. This essentially will lower your “credit utilization rate,” meaning you’re using less of your potential debt. This looks good to creditors because it means you don’t have to keep your credit cards charged to the max. 

For example, let’s say your current limit on a credit card is $5,000 and you have a balance of $2,000. That means your credit utilization is $2,000/$5,000 = 40%. But if you get your limit raised to $6,000, your credit utilization is now $2,000/$6,000 = 33%. This is a good thing in the eyes of creditors and can boost your score. 

Conclusion

Need more help with your credit score, or have any questions about the mortgage process? Give us a call at (949)-651-6300. We look forward to hearing from you.