In the last blog, we established the fact that your credit score plays a major factor in determining many of the variables in a person’s financial stature when buying a house. The difference between a good credit score and a poor one could result in tens of thousands of dollars. Therefore, in this blog we will discuss several potential possibilities to raise ones credit score.
- Pay Down your Credit Cards quickly
Credit cards can be a blessing or a curse. If used responsibly, they can be used to build up credit. For example, if you have a credit card with a limit and have it set up to be paid off each month, it can go a long way in boosting your score. If, however, you miss a payment due to external circumstances this can prove to be a nightmare. Not only will this put a black mark on your credit score sometimes lowering it by 50 or more points, it will also cause the interest rate on the card to soar sky high. If you have a card with a 3% interest rate or lower, missing just one payment could vault it to 18% or higher! This is why so many financial advisors like Dave Ramsey say to stay away from credit. His debt-snowballing principle is worth looking into if you have made some of these mistakes. However, for the purpose of this blog, it is important to know that your credit utilization ratio-the percentage of credit you are using on your credit cards-accounts for 30% of your credit score. The higher balance you have on your credit cards, the lower your credit score will be. This is why it is imperative to pay down your credit card balances as low as possible before applying for a mortgage.
- Pay for “delete”
Another factor that puts a “black mark” on your credit score is a collection. This occurs when money is owed to some institution or business and they seek to obtain it through a collection agency. This too can have tremendously adverse affects on your credit lowering it by 100 points or more. If something like this has happened, most creditors and collection agencies will work with you. One of the ways they will work with you is a “pay for delete”. When you contact them, you can ask them if they will delete this mark on your score if you agree to pay all or a % of the balance in a timely manner. If they work with you in this regard, it can bring your credit score up multiples of 10s of points.
- Become an Authorized User
The last thing you can do to raise your credit score is to become an authorized user. If you have a family member with a credit card, and they are in good standing you can contact the company and ask them to add you as an authorized user on their account. This will include their entire credit history on your credit report. It is a quick and easy way to accumulate up to 30 points of credit.
There are several more ways to raise credit, but these three ways will go a long way in getting you ready to move into preparations for the purchase of a home. If you put these principles into practice, within 6 months to a year you could possibly raise your score 100 points and be ready to take on your first mortgage!