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Whether you plan on buying your first home or your tenth one in 2022, you need to make sure your credit score is at its best. Any score of 740 to 799 is considered very good. But to reach “excellent” status, you need to hit 800 or above. Fortunately, you do not need an “excellent” score to qualify for a mortgage loan. However, the higher your score, the better the interest rate you receive. Lower interest rates mean lower monthly payments. While some programs allow a FICO score in the 500s, you really want to aim for something higher than 620 to qualify for a respectable interest rate. So, before you even start looking for an Inland Empire home, get your credit in shape.
How to Boost Your Credit Score
Get a Copy of Your Credit Report
Legally, everyone may obtain a copy of their credit report from each of the three reporting agencies (Experian, Equifax, and TransUnion) once a year. First, visit AnnualCreditReport.com to order your free report. Second, look for any errors in the report. These include wrong addresses, the status of your accounts, and accounts you never opened. If you find any errors, report them to the creditor who made the error as well as the agency reporting the erroneous information. Each agency uses its own method for filing a dispute. Visit the corresponding agency’s website to find out what you need to do.
Pay Off Your Most Recent Collection Accounts
Notice that I did not say pay off “all” collection accounts. Some collections may be so old that paying them off now might not affect your credit score at all. Talk to your lender to find out which ones to concentrate on first. Instead of paying the collection agency, though, you should pay the original creditor. This works more in your favor.
Pay Your Balances Down
The next step to take when boosting your credit score is to pay down your balances. But paying them off might not necessarily be the best course of action. Rather, aim for a balance of 30% of your limit or lower. If you have three credit cards with high balances on each, you should focus on paying one down to 30% of its limit. Then, move on to the next card until it is paid down to 30%. And so on.
Another way to lessen your balance-to-usage ratio is to ask your credit card company for an increase in your limit. As long as you avoid charging any more on the card, you end up paying the balance down to 30% faster. How? Well, let’s say that you have a $2500 limit on your credit card with a $1250 balance. That equates to a 50% credit utilization. Too high for most lenders. However, your credit card company agrees to increase your limit to $5000. That same $1250 balance now equates to 25% credit utilization. Your creditor may not agree to this much of an increase (or any at all). But it is always worth a try.
Set Up Auto Pay Whenever Possible
We all lead busy lives nowadays. Missing a payment date may happen easier than you think. Since your payment history makes up a significant portion of your credit score (35%), you need to make sure you pay on time. By setting up an automatic payment arrangement with your creditors, you avoid missing payment dates and harming your credit. Some banks offer programs that allow you to set auto pay up directly from your bank account. Many credit card companies, car loan companies, medical facilities, and even utility services allow you to do the same.
Experian Boost
You saw me say “utility services” before. Sound strange? Well, one of the credit reporting agencies actually allows you to submit your utility service payments as part of your payment history for your credit score. Experian Boost takes just a few minutes to complete. Not all credit scores increase. But it might help yours. And it is free to complete. So, it is very much worth a shot.
When you get your credit score to its best place possible, talk to a lender about starting the loan pre-approval process. Then, contact me to get you started on your Inland Empire home search.
Muna Dionne, your Inland Empire specialist with Coldwell Banker Realty
