When looking to purchase a home your credit score should be at its best. There are several immediate steps you can take to rebuild your credit history and begin to see your credit score improve over the years.
One way to help reduce your debt is to start by writing down of all the loans you currently have from highest loan amount and interest rate to the lowest. Once you do this, create a payment plan that allows you to put most of your budget towards the highest loan amount while still being able to pay the minimum amount on the other accounts. Once you pay that off move to the next loan to create a snowball effect on your overall debt.
2. Fix errors on your credit
If you haven’t pulled your credit score report to see any errors, it may be a good time to do just that. It will show any false reportings such as late payments, items that went to collections on something you already paid, or false accounts opened by someone else. One option is to hire a credit repair company to help with these requests and removing any false errors.
3. Transfer balances to a lower rate or new card
This one can be a bit tricky; you have to trust yourself that once you transfer the smaller amount to a different card with a lower interest rate or even open up a new card with zero percent APR, that you won’t use the newly freed up card to stack on more debt. Transferring balances can save money on interest payments and help to consolidate the amount of debt you have making it more manageable.
On time payments are one of the most influential factors on your credit score so it’s imperative that you pay on time or early. This will gradually raise your credit score and keep you from paying expensive late fees.
5. Don’t close unused credit cards
Having a long positive credit history will increase your score so it’s a good idea to keep those older cards open if you had a solid repayment record with the company. It’s also a good idea to keep the card active by putting a small purchase on it that you can easily pay off in full on the due date.
6. Do not max out your cards
Use a smaller percentage of your credit utilization ratio. Meaning even though you were approved for a $5,000 credit limit, you should really only be putting about $1,500 on that card, according to some credit experts, or 30% of that card balance. Keeping the balances low will help raise your credit score over time and look even better to lenders since you are using a small portion of your available credit.
About the Author: David Zitting has been in the mortgage industry for more than 20 years and is the CEO and President of Primary Residential Mortgage, Inc. (PRMI) a nationwide, multibillion-dollar mortgage lender headquartered in Salt Lake City, Utah.