Your credit score can really hurt your chances of getting a home. It may not be the whole picture with regards to what your finances actually look like but it is something that lenders look at when reviewing you for a mortgage. Even if you pay all your bills on time and have no debt, if you have no credit (such as an open credit card with a decent credit limit) they see you as not having good credit. And that can seriously hurt your chances. Even just having one that you get and pay off every month has a chance to improve your FICO score. Let’s take a quick look first as to what your FICO score consists of and how you can raise your credit score.
What Does A FICO Score Consist Of?
It only consists of the information that is available on your credit report. So even if you have a job making a good amount of money, that doesn’t affect your credit score. One of the most important categories is your payment history, which accounts for 35 percent of your score. This is where they look to determine if you have paid your bills on time. So if you are one to have late payments frequently this will affect your credit score negatively.
Amounts owed accounts for about 30 percent of your credit score. Owing a lot of money doesn’t necessarily make you a higher risk, but you don’t want to owe more than you can feasibly pay back. They also look at the length of your credit history, which means how long you’ve had a credit card open or a loan etc. This is 15 percent of your FICO score.
The lowest two considerations to your FICO score would be a mix of credit and new credit which both account for about 10 percent of your FICO score. A mix means that you have different kind of accounts such as car loans, credit cards, mortgages, etc. New accounts are just that, having new open credit cards or loans, etc. Having multiple new accounts could affect your credit score.
If you want to see exactly what items are being counted, it’s recommended to get a credit report from one of the three major agencies. Those are Equifax, TransUnion, and Experian. Getting all three is important because they each can have slightly different information affecting your score. If they aren’t accurate you can fix that. Now that we have determined what your credit score is made of; let’s look at some ways that you can raise your credit score.
Make Sure You Are Paying On-Time
This is one of the easiest ways to fix things and it also plays a huge roll in your credit score. If you are past due on any of your accounts it would help to improve your FICO score by getting them current. The best way to do this is after you get your credit reports, make sure you look them over and find any that are past due and catch them up as soon as possible. You’ll start to see the increase in your FICO score typically within a few months of making on time payments. After approximately 12-24 months you’ll see an even bigger improvement. Getting back to making timely payments can be hard. But it’s really in your best interest to stay on top of anything.
Keep in mind the later your payments are the more negatively it affects your scores. Plus your score is also affected by how many accounts are late as opposed to how many accounts you already have. If you have 15 accounts for example and 14 of them are on time, the one is not going to hurt your score terribly, but if 13 of them are behind, that’s a significant ding to your FICO score. So keeping them current is important.
Make Sure your Credit Report is Accurate
Reviewing you credit report for inaccuracies is extremely important. They can be affecting your score negatively which is something that you would want to rectify as soon as possible. This can also be a way of detecting if someone else is using your information. You may need to submit verification that what you are disputing wasn’t you and they have generally 30 days to investigate the information. This even goes for late payments. Getting that one ding removed from your report can significantly raise your credit score. Alternatively you can hire a professional firm to fix or repair your credit.
Throw on your Charm
Don’t laugh at this one, seriously you may be able to contact a creditor and ask them to waive a late fee or a late payment. For example, if you run into a terrible hardship were in an accident and couldn’t get the payment made on time, but have been timely since then, they may be willing to work with you and remove the late payment off the credit report. It can’t hurt to ask, what’s the worst they can say? Honestly even if they say no, you’re still in the same boat so it won’t change anything negatively but getting it removed can help to raise your credit score.
Settle Old Debts
Having accounts that are in collections, which were charged off, etc., are things that you will want to have removed or changed on your report. Start small and settle them one at a time. If they are within the last 24 months you’ll want to start there. Sometimes you can even settle for a lower amount if you call them and are willing to pay a lump sum at that moment.
One thing to remember when you start paying off the older delinquent accounts is that once you settle they become recent accounts again and that can negatively affect your score for a bit. When settling, call them and see if they will completely remove the information from the credit report when you settle so it doesn’t negatively affect it.
Decrease the Amount Owed
Although they don’t look at income with your credit score, they do look at how much you owe in relation to how much open credit you have. In order to improve your FICO score you’ll want to owe less than 30 percent of the available credit you have. Anything more than that and your FICO score will start to decrease. So in reality just because you have a credit card with a $5,000 limit, it doesn’t mean you want to rack up the charges. Ideally you’ll want to stay below $1,500 in this instance. If your utilization is high, lower the debt on your credit cards first and then the installment debts.
Now you may want to ask why raising your credit score is important, well because when it comes to mortgages, the higher your credit score, the lower the rate for the home you want to buy, which means lower monthly payment. So get started on improving your FICO score today, because it can only benefit you in the long run.
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