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8 Ways to Boost Your Credit Score in the New Year

8 Ways to boost your credit score in 2018Whether you are planning to buy a home in 2018, or are considering refinancing your mortgage, you’ll want to make sure your credit is in tip top shape to get the best interest rate possible. Here are 8 ways to boost your credit score in the New Year to help you reach your financial goals:

  1. Pay your installment loans like car loans and student loans on time every month. Even paying them a day late can wreak havoc on your credit. Pay on time, every time. If you have to be late, call your lender before the payment is due to explain and to see if there are any options to pay later that won’t affect your credit.
  2. Do not close old credit cards. You haven’t used that department store credit card in awhile, but you have a $1,000 credit limit. Closing that card will actually reduce the amount of total credit you have available which can count against you. Keep it open. Just don’t use it, particularly if it carries a high interest rate.
  3. If you don’t have credit, establish it. Not having credit is a problem because you haven’t shown a lender, credit card company or other creditor how you’d handle credit. Apply for a small department store card, a secured credit card, a secured loan or a combination of these accounts to begin establishing credit. Start by charging a small amount and paying it off at the end of each month. Credit history will be based on how timely you pay but also how long you’ve had credit, so this strategy will take time but it is worth it.
  4. It’s OK to pay off loans early. Paying your loans on time is critical, but if you are in a position to make payments early, to add extra money to the principal portion of the payment or pay it off early, you will help your credit.
  5. Review your credit score for free annually. Correct any obvious errors and follow up on items that may not be your, the sooner, the better.
  6. Pay off collection accounts as soon as possible. Have an old dentist bill from three years ago you didn’t pay? This can stay on your credit report for up to seven years, even longer if the original creditor “sells” the debt to another credit agency for collection.
  7. Don’t open a bunch of new accounts at once to increase your amount of available credit. This can lower your average account age. Instead, open accounts as you need them and use them responsibly.
  8. Keep your credit balances low on revolving accounts. Having a lot of debt negatively impacts your credit.

 

How credit scores work when buying a home

creditCredit scores are an objective measure used by creditors to evaluate your credit worthiness. Credit scores are used to determine your ability to repay credit cards, consumer loans and mortgages. When applying for a mortgage, for example, the scoring model your mortgage lender uses will consider your down payment, total debt and total income, among other factors.

Here are some of the criteria used to determine if your credit is sufficient enough to help you get a mortgage:

–        Payment history
–        Amount of debt
–        Length of credit history
–        Recent applications for credit
–        Number and types of credit accounts

Having good credit can help you buy a home at a favorable market rate, while having bad credit can drive up your interest rate or event prevent you from buying a home altogether! Want to see how you rate? Consumers can receive one free credit report per year. Visit the FTC website for how to request a copy. Requesting and reviewing your report can help you see where you stand, as well as to help you identify errors.

If you aren’t where you need to be to qualify for a mortgage, you can improve your credit score by paying your bills on time, paying down your debt and closing unnecessary accounts. An experienced REALTOR® or mortgage lender can help you determine if you qualify for a mortgage and, if not, what steps you need to take to get your credit back on track.

For more information on credit scores from the FTC, click here.