Are you two house hunting (or plan to be soon) and want to get the best rates? Here are five effective ways to raise your credit scores!
While your credit score is not the most important (or really accurate) indicator of your financial health, it has a huge impact.
Lenders look at your credit score when deciding what rates you qualify for and if you’re looking at a big purchase, like a house, that can mean tens of thousands of dollars (or more) over the life of your mortgage.
One of the best things you can do before you go house hunting (or refinancing) is making sure your score is higher.
Before we get into how you can increase your credit scores, I want to make sure we’re on the same page.
How to Raise Your Credit Scores
Many people, including myself years ago, use credit reports and credit scores interchangeably. While they are related they are not the same.
Quite simply, your credit scores are calculated based on what is on your credit report.
Your credit report is a record of your history of payments on your debts and helps lenders determine your creditworthiness.
You have 3 credit reports, one with each credit bureau – Equifax, Experian, and TransUnion.
According to FICO, credit scores are calculated by a few factors, weighted differently:
- 35% Payment History
- 30% Amount Owed
- 15% Length of Credit History
- 10% New Credit
- 10% Types of Credit
Your credit score is a number between 300-850 that each of the credit agencies assigns based on the information on your credit report.
As you can see ine the chart above, there are certain key factors that can help you effectively and efficiently raise your credit score.
You can watch me break them down in this week’s Marriage and Money Tips or check out my take right below!
Review Your Credit Reports
Since your score is based on what’s in those credit reports, you better make sure they got it right!
Use Annualcreditreport.com to get your reports from all three bureaus for free every year.
Now what we’ve done in the past is space things out so we get one bureau’s report every four months.
You can also use Credit Sesame to get your report and your credit score through TransUnion.
Automate Your Payments
Your payment history by far has the biggest influence on your credit score.
You want a consistent history of paying your bills on time so go ahead and schedule those payments. Not on the credit card side, but your bank or credit union.
If you’re behind on any of your debts, hustle to get caught up.
Avoid Large Balances
While having regular activity on your cards is important, carrying too much debt can make you appear financially strained, so be sure to pay balances quickly.
Don’t Close an Account After You Paid It Off
If your credit utilization ratio is high, your score will be negatively affected. Lenders like to see low ratios of 30% or less.
Now keep that in mind that’s the minimum. Ideally, you should be paying your balances off each month.
You may want to close your accounts because you don’t want the temptation to use your credit cards and get into more debt, I get that.
Listen you can cut up your credit cards if you want, but if you’re focused on a higher credit score for your mortgage, then keep the account open.
If you’re tempted to open new accounts so you can raise your score don’t.
Remember we are looking at raising your score without raising more needless risk or temptation. Never spend more money just to build your credit – it’s a losing game.
Knock Out your Debt
Finally, your goal should be to pay off your debts.
Getting rid of your credit card debt can be a huge win as you’re not being sucked into those ridiculous interest rates.
You can get even more freedom and options by paying off your student loans.
Finally, it might take a bit, but can you imagine getting rid of your mortgage?
How would you feel?
That’s a great spot to be in, right?
Credit Scores When You’re Debt Free
Okay so eventually you’re completely debt free, now you have a choice to make. With your finances in a good spot and your score too, where do you go from here? How important is your credit score now?
Some couples feel like leaving credit cards behind is the best thing for them. Awesome.
Others may feel like they can use credit cards to get rewards like flights or other perks.
If so, make sure you have a system to pay them off consistently. Here’s where tools like Debitize can make things easier for you.
Debitize lets you use your credit card like a debit card so you can earn points & build credit without debt or interest fees.
However you decide to handle your finances once your debts knocked out is up to you.
Your Take on Credit Scores
I’d love to get your take. How much does your credit score affect your finances?
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