How to Make Your Credit Score Less Spooky this Season

Do you need to increase your credit score so it's less scary for mortgage lenders? If you want to buy a house in the next year and want to improve your credit rating, we've got you covered. 

Here are a few of the best things you can do to help you land that great mortgage approval next year.

Tip #1: Review Your Credit Reports

Have you ever heard the phrase "What gets measured gets managed" by Peter Drucker? While he meant it in the terms of business, the same principle applies to all areas of our lives. Our credit scores are no exception. 

There are a few reasons why you should review your credit report. The first is it gives you a high-level idea of where you are. Is your score above 620, which is generally the accepted minimum to get a conventional loan? If not, that means you have some work to do. 

The second thing you'll see is if anything looks out of place. Do you see a credit card or two that you don't recognize? If so, look into it. You need to make sure your identity wasn't stolen!

Third, you'll have a snapshot of your current debts and liabilities. This can help you understand how much debt you have overall and need to pay off. 
How do you check your credit report? You can go straight to the sources themselves or check out AnnualCreditReport.com

Tip #2: Slay Those Bill Monsters on Time

The best way to increase your credit score is simple: pay your bills on time. If you have debts such as credit cards, student loans, car loans, or a mortgage, make sure you aren't late paying those bills. Utility bills are also important. 

Why is this important? Because 35% of your credit score is based on this one factor! It's the single largest factor affecting your score. 

Payment history is important because it's how companies understand if you're good at paying back the money that you owe. It's fine to take out debt – almost everyone has to at some point in their lives. But the question is how well do you pay off those debts?

This leads us to the next point.

Tip #3: Kill the Debt Monsters

After your payment history, the second biggest factor affecting your credit rating is the amounts owed. To increase your credit score, one thing you can do is lower how much money you owe creditors. 

Easier said than done, right? Sometimes paying off a mountain of debt can be intimidating, like facing off against a werewolf with a tiny little silver knife. But getting aggressive with debt repayments is something you won't regret. We say that for two reasons: 

1. It will help you get the mortgage approval you need to buy your dream house
2. You'll feel better by seeing that mountain of debt get smaller and smaller

How do you decide which debts to pay off first? Every financial guru has their way, but here are two of the most common. 

• Your first option is the "snowball" method made popular by Dave Ramsey. Here you pay off the smallest debt first, then roll the money that was going into that into the next smallest debt. You keep repeating until you're debt-free. 
• Your second option is to pay off the highest interest debts first since these cost you the most per dollar borrowed

Both work, it's a matter of personal preference which one you choose.

Tip #3: Keep Your Old Credit Cards and Avoid Opening Lots More

This section will cover the other 3 "buckets" affecting your credit score:

• Credit history: 15%
• New credit: 10%
• Credit mix: 10%

In the case of credit cards, an oldie is a goodie. 15% of your credit score is based on credit history, so you're rewarded by keeping credit cards open for a long time. 

On the flip side, 10% of your score is based on new credit… or a lack thereof. If you're opening a lot of new credit, that can be a red flag for lenders. 

To increase your credit score over time, just get in a good position of having a good mix and stay there. You'll want to have a few types of loans and maybe a utility or two in your name. Then don't open anything else or close your existing cards!

Conclusion

The road to increasing your credit score doesn't have to be like walking through a haunted forest by yourself- go with someone else! That's what we're here for. Reach out here and we'll answer any questions you have about the mortgage approval process.