A good credit score is important if you’re thinking about purchasing a home. Your credit score impacts the interest rate that you can get for a mortgage. It also can impact your ability to qualify for certain types of home loans. And if it’s really low, you may have to work on it for a while before qualifying for a home loan.
What’s the best way to increase a credit score? Here are three things that people with good credit scores have in common:
- Consistent, on-time payments. On-time payments can provide a big boost to a person’s credit score. Likewise, late payments can dramatically lower it. Your credit score reflects how well you make your payments on your mortgage, credit cards, student loans, and other financial obligations. Your payment history is responsible for as much as a third or more of your overall score. Consistent, on-time payments are vital.
- A reasonable amount of debt. Aim to use only a small percentage of your available credit. Maxed out credit cards or balances all approaching a credit limit will certainly lower your credit score. Have you heard the term credit utilization? That’s the percentage of your available credit that you actually use. Generally, a good credit utilization rate is less than 30 percent. Simply put, that means you’re using less than 30 percent of the total credit that is available to you. On a credit card with a $10,000 limit, that means keeping your balance below $3,000.
- Diversify Your Credit Mix. Credit agencies consider the types of credit you have when calculating your credit score. Having a healthy mix of credit accounts, such as credit cards, student loans, or a mortgage, can positively impact your credit score. However, it’s essential to note that you should only take on credit that you can manage responsibly. Don’t open unnecessary accounts just for the sake of diversification. Instead, focus on maintaining a healthy mix of credit accounts over time to demonstrate your ability to handle different types of credit responsibly.
- An error-free credit report. Monitoring your credit report is essential for identifying and addressing any discrepancies or errors that may be negatively impacting your credit score. By law, you are entitled to a free copy of your credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) once a year. Take advantage of this opportunity and review your report for accuracy. If you find any errors, report them to the respective credit bureau immediately and request a correction.
Consumers with high credit scores often enjoy lower rates for mortgages, especially important in the current economy, and other types of consumer loans and lower premiums on some types of insurance policies. Raising your credit score is an empowering journey that requires discipline, consistency, and financial responsibility. With mindful financial practices, you can pave the way toward recognizing your dream of home ownership.
