How to Improve your Credit Score
BY THE PERK LENDING TEAM | June 1, 2023 | 2-minute read
Why does my credit matter?
Your credit score is essentially a grade on how well you’ve managed debt in the past. Though it is possible to qualify for a mortgage with a credit score below 620, these mortgages are much more expensive.
A higher credit score will allow you to qualify for more products and lower interest rates. However, high credit scores take years of responsible debt management to obtain.
Regardless of your current score or situation, there is never a bad time to start building up your score. Below are tips on how to give your score a quick boost as well as raising it over the long term.
Quick Boost
Pay down large balances. Carrying large outstanding balances on credit account will hold your score down. Account balances should be paid down to less than 30% of the total credit available.
Check your credit report for inaccuracies. Inaccuracies can appear for a variety of reasons: clerical errors, incomplete information, identity theft, etc. Removing erroneous accounts or balances with the credit bureaus will drastically improve your score. We recommend everyone check their credit reports annually to ensure they are accurate. This can be done for free each year at www.AnnualCreditReport.com.
Long-Term Build
Make all required payments on time. Missing a required minimum payment will drop your score. Similarly, late payments are recorded in your credit report. Multiple late payments in the previous two years can make it difficult to qualify for mortgage financing.
Manage and maintain a variety of debt accounts (if possible). Lenders like seeing a borrower that can manage both installment debt (auto loans, student loans, etc) and revolving debt (credit cards).
Avoid applying for a lot of new debt. Your credit score will drop as soon as your credit report is pulled when applying for new debt. Although maintaining a variety of debt accounts will reflect positively on your credit score in the long term, too many recent applications for new credit (retail credit cards, loans, etc.) will lower your score and potentially make it difficult to qualify for mortgage financing.
Avoid closing revolving accounts. Total available credit granted to you and how long you’ve had your accounts open represent approximately 45% of your credit score. Closing accounts reduces both of those components and will cause an immediate drop to your score.
The most important thing to remember is that a high credit score takes years to build. Stay patient, disciplined and diligent and your score will rise.
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