Your credit score (also known as your FICO score) falls within a range from 300 to 850, and you definitely want to have a score on the high end of the scale. To avoid a low credit score in the first place, it’s important to make all bill payments on time and in full. Using more than 30% of your account limit on a credit card can also lower your score, so try to avoid doing so. Frequently opening new credit cards can also lead to bad credit, so make sure you keep your cards to a handful and monitor any that you don’t use often – anything that happens on an unused account (even if you aren’t aware of it) can affect your credit. Transferring your balance from card to card to take advantage of better rates can also have a negative impact on your credit.
If you’re in the position of having a lower credit score than you would like or you don’t have much of a credit history to draw from, there are a few steps you can take to build good credit:
1) Establish healthy credit. Take out a couple of credit cards and use them to pay for your regular expenses. Pay them on time each month – pay at least the minimum and more if you can.
2) Start early. Building good credit takes time, so if a home purchase is on the horizon for you in the next couple of years, start working to boost your credit now.
3) Build good habits. Don’t go overboard with purchases you can’t really afford. Monitor your credit accounts and don’t make any purchases you can’t afford to pay for – this could lead to a payment lapse. When you have a longstanding account with a good payment record, keep that account open and make purchases from time to time – a lengthy, favorable history with a creditor is one of your best assets.
4) Get help. Partner with a reputable credit repair agency to seek the help that you need to make lasting changes that will raise your credit and keep it at a favorable level.
5) Repair mistakes. You can order your credit report for free once each year. Your credit score number will reflect your credit assessment by each of the three main credit reporting bureaus: TransUnion, Equifax, and Experian. If you see an inaccuracy in your credit record, contact the creditor in question to address the issue. If an error is detected, work with the credit bureaus to rectify the mistake on your report.
Creating good credit takes time and patience. The best move you can make toward obtaining a high credit score is to monitor your finances judiciously and to budget wisely so that you can make all of your payments on time. If you are careful with your payments, your high credit rating could mean an easier time getting your mortgage loan and lower your mortgage interest rate when you decide you want to purchase a home.
Questions? Talk to your loan officer. He or she has experience in explaining the role of credit in your home purchase.
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