How Home Buyers Can Improve a Credit Score ASAP

As people prepare to get any type of loan they start to pay close attention to their credit score.  While looking to get a mortgage this becomes very important since a bad credit score could stop the entire process.  

The better a person’s credit the better chances they have at getting a good interest rate on a loan.  And while fixing credit is a long process, there are some tricks to boost the score within a few months.

What Credit Score to Shoot For

Credit scores can vary from 850 and below.  Anything below 650 is considered a low score or a bad credit score.  Borrowers will have to jump through hoops to find a lender that will work with that low of a score.  

Anything ranging from 650 to 699 is a fair score.  Most lenders want to see a score of at least 660 to approve a loan.

Someone that has a score between the 700 to 759 range is considered to have a good credit score.  A score of 760 to 849 is excellent and an 850 would be perfect. It is not needed to have a perfect credit score or even an excellent one to get a mortgage.  But the higher the score the easier it will be.

Start With Errors

Do not assume everything on a credit report is correct.  Someone who does not pay close attention to their credit report may miss if an account has been fraudulently opened in their name or if there are accounts not showing on the report that should be there.  Depending on the error is can take a while to correct it, so start this process well before trying to get a mortgage.

If the error is a fraudulent account it can be taken off within two months.  However, if there are errors on accounts that the credit holder has, that process can take up to three months.  The credit holder must talk with the creditor and credit bureau, possibly many times, to get the error taken off their credit.

Always review credit reports in detail.  Once a year everyone can get a free credit report from annualcreditreport.com.  This will include credit reports from TransUnion, Equifax, and Experian. These reports can be used to see if there are any errors on any of the three major credit bureaus.  

Overdue Accounts

Always bring overdue accounts up-to-date.  The goal is to not allow any accounts to become overdue or delinquent, but if there are any they should be settled right away.  Settling this accounts can give a credit score a boost fairly quickly, as most borrowers will see their score increase within a month.  Even though the accounts have been brought up to date, the history of delinquency will remain on the account for the next seven years.

Utilization of Credit Accounts

Credit utilization is a huge percentage of a credit score.  This accounts for thirty percent of the score and having high credit utilization can bring down a score dramatically.  Credit utilization is all about the credit available to borrow versus the credit that is borrowed. A person who can borrow up to $1,000 who has borrowed $500 will be at fifty percent utilization.  This percentage should be kept as low as possible to increase a credit score.

You will also want to pay down accounts to lower this percentage.  Some people do choose to open new credit accounts to increase the amount that they can borrow which does lower their overall credit utilization percentage.  However, it can also lower their credit score because they have added another hard inquiry to their account.

Long Process

Someone with a terrible credit score is going to find it easier to increase their score versus someone who is already in good standing.  There are a lot of options for someone that has many delinquent accounts or high credit utilization. Taking care of problems on a credit score can help it increase rapidly.  However, once all problems are taken care of it is a much longer process to continue increasing the score.

Working on increasing a credit score is important.  Anyone that wants to get a loan should be paying attention to their credit score.  Start correcting problems a year or two in advance before applying for a loan. This gives the borrower ample time to make major changes in their spending habits and correct any errors on the accounts.