Help! My credit isn’t good enough to lock down a low mortgage rate. What should I do to improve my credit score and how long will it take?
We’ve all heard the buzz about the low, low mortgage interest rates out there right now. Rates for a 30-year fixed mortgage stood at 2.5% this week, and those great deals coupled with more city-dwellers migrating to suburbia have driven home sales to their highest pace since 2006. But of course to capitalize on the lowest mortgage rates, you’ve got to qualify for them — which means having a good credit score. So, what do you do if your credit isn’t good enough to get you that low rate you want right now? Are you just out of luck? Is it impossible to improve your credit score? Not at all, say our experts. There are some action steps you can take today to increase your score, so at the same time you’re adding more savings to put towards a down payment, you can be building your credit score to help you secure the best rate.
“People tend to overthink credit,” says Matt Schulz, chief industry analyst for CompareCards.com. “They think it’s this mysterious, complex beast. Ultimately, it’s just about three things: paying your bills on time every time, keeping your balances low and not applying for too much credit too often.”
Here’s a look at how to get started.
Pay your bills on time
Paying your bills on time is THE most important factor in improving your credit score, says Bevery Harzog, credit card expert and consumer finance analyst for U.S. News and World Report.
READ MORE: How Netflix Can Boost Your Credit Score
“Getting the lowest rate possible can save so much money over the life of that mortgage, and one of the keys to saving a lot of money is having a great credit score,” Harzog says. If you’re prone to miss payments, let technology help you — set up autopay for as many of your bills as you can, ensuring you never fall behind.
Lower your credit card debt and limit your spending
If you have credit card debt, it’s time to pay it down, and avoid making any big purchases between now and the time you apply. Why? Another big factor in your credit score is something called your “credit utilization ratio” which shows how much of your available credit you’re using. Across all of your credit cards, and you want to keep that number as low as possible. Harzog says that 10% or less is where you want to be – and having zero debt is best – but a number under 10% can help you improve your credit score.
If you’re able, make an additional payment on your card just before the credit bureaus reports your balance to the lender. This will ensure your balance is at the lowest possible point just before you’re considered for approval, and can improve your credit score.
Avoid opening new cards or loans
If possible, avoid any new credit inquiries while trying to improve your credit score. These happen whenever you apply for a new credit card (even store credit cards). These inquiries can knock two to five points off your credit score, according to Harzog. Although these dings are temporary, you don’t want to take any risks when it comes to getting the best mortgage rate possible.
Don’t close any credit cards
When you close a card, your credit score can take a hit, simply because you’re losing access to credit, which can improve your credit utilization ratio. As long as a card is in good standing, having an additional card (even if it’s not being used at all) doesn’t hurt, and can technically help by adding to your available credit. Of course closing cards needs to happen every now and then, so by all means go for it — just save it for after you get your mortgage!
Check your progress
As you’re making changes, check in on your credit report to see how you’re impacting your score. Your credit card or bank may be sending this information to you already, or you can check annualcreditreport.com. You can pay for a FICO score or get a free educational score to just show if you’re going in the right direction.
It’s also important to check that your reported balances are accurate, that there are no mistaken reports of late payment, and that all the accounts attributed to you are yours. Triple check your basic information, and check for fraud. It’s important to get a report from each of the bureaus (Experian, Transunion and Equifax) and check them individually.
“Removing any errors or inaccuracies on your credit report can make a major difference to your credit score,” Schulz says. “People would be surprised to know just how often mistakes appear on credit reports, and these errors can be significant. The last thing you want is to have your credit damaged by mistakes that you didn’t even make.”
How long will this take?
By making on-time payments, every time, paying down debt, and not adding more to your credit card balances, Harzog says you can expect to see an uptick in your score within a month or so — basically one billing cycle. Depending on how much you need to improve your score, you may need to stick with this level of diligence for a while. The most important thing is that you get your credit score up as much as you can before a lender contacts the credit bureaus.
“A home is the biggest purchase most people will ever make, and a low rate on that home can save you thousands of dollars over the years,” Schulz says. “The good news is that it is simpler to do than people might expect, although it is important to understand that credit is a marathon rather than a sprint.”
MORE ON HERMONEY:
- How Many Credit Scores Do I Have?
- 4 Easy Hacks to Increase Your Credit Score
- If Your Credit Score Is Under 700, Make These 5 Moves ASAP
- How to Get a Free Credit Report Every Week
SUBSCRIBE: Own your money, own your life. Subscribe to HerMoney to get the latest money news and tips!
Editor’s note: We maintain a strict editorial policy and a judgment-free zone for our community, and we also strive to remain transparent in everything we do. Posts may contain references and links to products from our partners. Learn more about how we make money.
