Anyone who is thinking about getting a mortgage loan in the near future wants to be sure their credit score is as high as possible. Your score can range from 300-850, and if your score is 600 or below, you will have a hard time getting a mortgage. By utilizing these recommended credit repair strategies your will be in a great position to fix your credit problems. Fortunately, there are several things you can do to repair your credit and raise your score in less than a year:
#1 Understand How a Credit Score Works
Your credit score is arrived at by considering these five factors:
Many people have no idea how credit scores are calculated so they may not have as high a score as they could.
#2 Get Your Credit Report
Your credit score is based upon what is in your report, so you should take a look at what is on there at least once per year. You can get a free credit report each year from the three credit bureaus. Reviewing your report can shed light on why your score is not as high as you thought. You may not have realized that paying that bill 30 days late was going on your report, for example. If you know, then you can prevent it from occurring again.
#3 Pay All Bills on Time
If you have some recent late payments that hit your credit report, it's ok. It's done and nothing can be done about it. What you need to do is to pay every bill on time from now on. The good thing is that the negative marks on your credit report are less important as time passes. Potential mortgage lenders can still see those late payments, but they carry less weight after a year, and even less after two years.
#4 Reduce Credit Card Balances
A full 30% of your credit score depends upon how much you owe on credit cards. If you are maxed on your credit cards, even if you pay on time, you will see a 30-50 point drop on your score. You should keep your balances under 30% of your limit, and the lower the better. Also, note that even if you pay off your balance every month, the amount of credit you are using on the day your monthly statement comes out is the amount they will use to figure your credit score. So, keep your balances low at all times when you are applying for a mortgage. Do not assume after you are approved for a mortgage that you can spend freely: The lender will run your credit report again just before closing to see if you went out on a spending spree.
#5 Have Several Types of Credit
Your credit mix is 10% of your score. Credit scoring models will always favor people with a mix of revolving credit lines – credit cards – and installment credit, such as car loans and mortgages. If you only have credit cards, this will lower your score. An ideal situation before you apply for a mortgage is to have two or three credit cards with limits of a few thousand dollars that you have low balances on and pay on time. Plus, have a car loan that is largely paid off that is paid on time for the last two years. No late payments in the last two years on anything. This type of scenario will maximize your credit score as you apply for a mortgage.
#6 Having No Credit Use Hurts You
To get a good score, you do need to use your credit; you just have to use it in a responsible way. Keep your balances low and always pay on time, and you will be good. On the other hand, if you have no open accounts, the lender has no way to judge how responsible you are.
#7 Do Not Apply for a Lot of Credit at Once
Each time you apply for credit, your credit report is accessed, and this inquiry is reported on your report. Each inquiry can reduce your score by a few points. It is not a good idea to apply for 10 new credit cards just before you apply for a mortgage. This can look like you are in a bad financial situation. Keep your inquiries to a minimum as you apply for a mortgage.
#8 Live Inside Your Means
If you run up credit cards and miss even a single payment, this can tank your score by 50 points or more. It is very important to manage your finances responsibly at all time.
Try these easy credit tips and you will find that your score will rise as you apply for a mortgage.
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