How can you improve your credit score?
In the past it was virtually impossible to change your score in the time between deciding to buy a home or refinancing and when you apply. Now there are "Rapid Re-score" programs and other techniques that can be applied that can change your score in as quickly as 1 week!
Even though we have ways to increase your score quickly, it's always better to follow a few simple strategies to keep your score as high as possible.
1. Make sure that the information each of the three credit reporting bureaus has is consistent and up to date. Order a copy of your credit report about once a year, and dispute any inaccuracies.
2. Late payments work against you. It's extremely important to pay bills on time, even if it's only the minimum payment. If you happen to make a late payment there is a way to bring your score back up faster. Instead of making just one monthly payment on time, make three. For example, if your credit card payment is $30/ month and it's due on the 24th of the month, make 3 separate payments of $10 before your due date. Then you are logging 3 on-time payments instead of just 1 per month which helps the late payment seem less significant.
3. Don't "max out" your Credit Cards. Since the balance on your open accounts is one of the major factors in determining your score, lower balances are better. Usually 29% of the credit limit will give you your best score. If you have a card with a $1000 limit, you would need to keep the balance below $300. One of the ways you can achieve this is by spreading out your debt between your credit cards. Of course if you have a card with Zero percent interest keep your balance on that card until a month before you are ready to purchase or refinance.
4. In most cases, it is never a good idea to close out your credit cards, especially the ones you have had the longest. One of the major determining factors of your credit score is account history. If you have a credit card that is 10 years old and you decide to close it, you just erased that 10 year history which will cause your score to drop considerably. Your reasoning for closing the card may be valid, like an annual fee, but that annual fee will most likely cost you less than a higher interest rate because of a lower score.
5. Not only is it important to keep your credit cards open, it's also important to keep them active. If you have a card that you might not use anymore because of the rate or other reasons it will go "inactive" after a year. Going inactive has almost the same effect as closing that card. To avoid this all you have to do is use it once every six months and it doesn't even have to be a large amount. Something like a tank of gas or groceries. Then you can just pay it off when the bill comes to avoid paying interest.
6. Another thing you have to watch out for is the "No Payments or Interest until..." type loans. These type of loans will lower your score because they have a higher risk of default. While some people payoff the loan before they ever have to make a payment; the majority of people who have these loans don't. What usually happens is the borrower will get their 1st payment in the mail after 2-5 years and can't afford the payment because of compounded interest. Even though you might make payments during the period where you are not required to, it will still affect your score. The good thing is once the loan is closed your score will go right back up (as long as there were no late payments).
