Your credit score says a lot about your financial responsibility. In fact, it is the way that lenders make a decision regarding your ability to take on a new mortgage. If you want to do everything you can to boost your credit score before you apply for a mortgage, the sooner you start the better. There are a few simple habits that you can start today that will have a large impact on your credit score now and into the future. When you know what matters the most when it comes to credit reports, you can make sure that you focus on what is important so that you can keep your scores high.
Stick to your Due Dates
Don’t pay your bills late seems like an easy enough thing to remember when you are trying to boost your credit score. Even one 30-day late payment can negatively impact your credit score. Your payment history accounts for 35% of your credit score. Since that is a large portion of the score, it is vitally important that you pay your bills on time. If you have one 30-day late payment or a later payment, it can take up to 12 months to bring your score back around. Of course, the more you let your late payments occur, the harder it is to boost your score back up, but even one late payment can have a negative impact. Credit scores take a cumulative look at your credit history, so the longer you make your payments on time, the higher your score will get.
Don’t Spend too Much
You have likely heard the rule – don’t charge what you cannot pay for in cash. This reason is in place for several reasons – it makes you think about what you are charging so that you do not get in over your head and it keeps your credit utilization rate low. Your utilization rate makes up 30% of the credit score, so it has a large impact on the overall score. In general, credit bureaus do not want you to spend more than 30% of your available credit; if you spend more than that it starts to negatively impact your credit score. Your utilization rate is figured in two different ways:
- The amount of credit you have outstanding on each credit card that you have
- The total amount of credit you have outstanding versus your total available credit
If you find that you are spending too much, focus on paying each card down to the point that they are not more than 30% of the available credit. When you get each card down to that 30% benchmark, you can then start working on paying each card off in its entirety.
Keep your Accounts Open
It can be tempting to start closing out those first few credit cards you every received or an old account that you no longer have a use for, but you might want to think about it before you do it. The newer that your credit accounts are, the lower your credit score becomes. That being said, you should keep all of your accounts open as long as possible in order to make the average age of your accounts longer. If you close your older accounts, the lower the average age becomes of your open accounts, which can inadvertently lower your credit score. Even if you do not use your credit accounts, they do not hurt you by remaining open. As long as you are not bothered by having more available credit and not using it, the accounts can remain as they are and continue to help your credit score increase.
Check for Errors
Humans make errors, which means that your credit report might not always be as accurate as you might think. It pays to take the time to go over it every so often to ensure that your debts are reporting accurately. If you find an error, you will have to do some legwork to get it fixed. Sometimes the credit bureau will fix the error themselves if you talk to them about it and provide the proof that the reporting should be different. You will need official documentation, such as canceled checks or receipts from the creditor showing that the reporting is incorrect, though, the credit bureau will not just take your word for it.
Don’t Use Too Many Credit Cards
Even though it is a good idea to keep your old credit accounts open, it is not a good idea to use each and every credit card account you have available to you. Instead, choose your two favorite cards that provide you with either the lowest interest rate or the most rewards and consistently use them. Let your other credit cards sit and age, helping your average age get higher and higher. If you use too many credit cards at once, a few things can happen:
- You can forget to pay one or more credit card bills, resulting in a late payment, which can hurt your credit
- You can make your utilization rate too high by using credit on too many cards at once and losing track of how much you have charged
In addition, typically, the more accounts with balances, the lower your credit score becomes. When you focus on the credit card that gives you the most benefits, you are better able to stay organized and you avoid the risk of lowering your credit score for a silly mistake.
These five habits should help you stay on top of your credit score. If you regularly participate in these habits, you will maximize your credit score’s ability, giving you a better chance towards getting approved for a mortgage. If you have not been performing these habits up until this point, it is not too late to start. Remember that your credit score is a cumulative score based on a variety of things – if you practice each of them as consistently as possible, your score will continually increase over time.