It is no secret that having a good credit score is essential to getting approved for a mortgage loan. Furthermore, the better your credit score, the better interest rate you can expect to receive when your loan is approved. Therefore, if you plan to purchase a home sometime in the near future, it is in your best interest to take steps to ensure your credit score is as high as possible. To that end, here are 5 tips for improving your credit.
Tip #1: Pay Your Bills on Time
Paying your bills in a timely manner is the single most important step you can take toward improving your credit score. The bulk of your credit score is determined by your loan repayment history. If you fail to repay your loans and credit cards as agreed upon, your credit score will be negatively impacted.
Tip #2: Avoid Opening New Accounts
Opening new accounts can have a negative impact on your credit score in two ways. First of all, having a high number of inquiries into your credit history makes it look as if you are desperately trying to take out new loans. This is considered to be a sign of financial distress. Second, opening new accounts increases the amount of credit that you have extended to you, which will be taken into consideration when determining whether or not you can handle the amount of credit you are requesting for your home mortgage loan.
Tip #3: Do Not Close Out Old Accounts
Just as opening new accounts can be damaging to your credit, so can closing old accounts. This is because old accounts help to establish that you have a lengthy credit history. If you have a credit card that has been open for some time, it is better that you use it on occasion in order to maintain a continual history with the card than it is to close it out.
Tip #4: Pay Down Your Balance
The amount of money that you have borrowed will affect your credit score, particularly as the amount borrowed compares to the amount of credit that you have. If you owe $1,900 on a credit card with a $2,000 credit limit, it is far more likely to have a negative impact on your credit score than if you owed $1,900 on a credit card with a $10,000 limit.
Tip #5: Work with Your Creditors
If you do find yourself in a bit of trouble with paying your bills on time, you should always work with your creditors to avoid further trouble. It may be tempting to try to avoid your creditors, but contacting them directly and explaining your situation can help with developing a payment plan that you can handle while also preventing your credit score from being harmed.
These are just a few of the steps that you can take to help improve your credit score. Of course, this is not a process that happens overnight. Therefore, if you are looking toward the future and you expect to purchase a home, it is in your best interest to start taking these steps as soon as possible.