If buying a home is a New Year’s resolution for you in 2022, then you’re going to need a good credit score if you want to get the best interest rate for a mortgage. Most finance experts say a score of 600 or higher is a good number. But to get excellent interest rates, a score of over 700 is recommended. You can check your score through your online banking platform or request a free credit report at www.annualcreditreport.com. Here are three ways to improve your credit score this year.
1. Set Up Auto-Pay
Make paying off debt manageable by automating your payments. Plus, payment history makes up 35% of your credit score, so you want to make sure you’re paying on time and consistently. On-time payments will increase your credit score as it decreases your debt to income ratio and shows that you can handle debt and pay it off promptly.
2. Use Less Available Credit
Another way to increase your credit score is to use less available credit. The amount of available credit you have versus the amount of money you owe is an important number since credit utilization makes up 30% of your credit score. A general rule of thumb is to use no more than 10%. For example, if you have a credit card with a $1,500 limit, the max should be $150.
If that strategy isn’t possible, the next best thing is to pay off your entire balance before the end of the month. Paying off the whole balance will help you avoid interest payments. If you have high-interest debt, it could be worth looking into low-interest personal loans or a balance transfer card, as their APRs are usually lower than your credit cards. But don’t overdo it because new credit inquiries make up 10% of your credit score, which can hurt you and lower your credit.
3. Sign Up for Credit-Building Programs
Utilize the programs that come with your credit card or bank, like free credit monitoring services. Some of the monitoring services will tell you exactly why your score is the way it is and how to improve it. Bank of America lets you check your FICO score and has a “Better Money Habits” tab to help you understand your credit and how to maintain, manage, and protect it. If your bank doesn’t offer this service, Credit Karma has a free monitoring service to alert you of fraudulent activity or if there are changes to your score.
Contact us if you need help creating a plan to buy a home this year! (512) 699-9714 or [email protected].
