Are you ready to purchase a home? Do you find yourself daydreaming about floor plans and home décor? Maybe you envision an outdoor retreat where you can enjoy fun-filled evenings and afternoons with your children, family, or friends. Or maybe you envision a well-organized home office where you can get stuff done. Regardless of what the exact picture of home looks like for you, there is no doubt that homeownership can be a great goal to work toward. But of course, the process doesn’t really begin with choosing your favorite features or picking out paint samples — it typically begins with your credit score.
Credit scores play an important role in the journey to homeownership, and if you are worried that your credit score could derail your financial goals, here’s some good news: There are often ways to improve. Here are a few suggestions on how to boost your credit score, keeping in mind that everyone’s unique financial situation is different (and that not everyone will see the same results).
Start With Your Three Credit Reports
Did you know that your credit report is available from three different credit bureaus? You should check your credit reports from Equifax, TransUnion, and Experian regularly — and especially when a new mortgage application is on the horizon. Just like you keep an eye on your bank account and credit cards for fraud or mistakes, you should check your credit reports across the three bureaus for the same reasons.
The credit bureaus work hard to make sure that the information on your credit reports is accurate and error-free. The Fair Credit Reporting Act (FRCA) requires them to do so, but the credit bureaus each maintain somewhere around 220 million consumer credit files so the sheer volume of credit files does leave some room for error (and despite everyone’s best efforts, credit reporting mistakes and fraud can happen).
Thankfully, checking your credit is free and easy. You can claim a free copy of your three credit reports every 12 months from AnnualCreditReport.com. Once you download your reports, look through them carefully for mistakes. If you discover incorrect information, the FCRA gives you the right to dispute items with the credit bureaus. If you do succeed in getting a negative, erroneous item removed from your reports, it could be reflected positively in your credit score.
Pay Down Credit Card Debt
One of the most promising potential ways to improve your credit score— not to mention your financial safety net or ability to save up — is to pay down debt. FICO credit scoring models are designed to closely evaluate the debt-to-credit limit usage on your credit card accounts (aka your revolving utilization ratio). In fact, a substantial 30% of your FICO® score is largely based upon revolving utilization.
Studies show that consumers who utilize higher percentages of their available credit card limits generally represent a bigger credit risk to lenders. As a result, higher revolving utilization typically correlates with a lower credit score. When you pay down balances on your credit cards, however, you will be utilizing less of your available credit — and your credit score could improve once those new, lower balances appear on your credit report.
When it comes to your credit score and credit reports, things generally take time. If you paid off your credit cards today, it could take as long as a month before you see it updated on your credit report. If you disputed a credit reporting error today, it could be 45 days (or more) before the credit bureaus can complete an investigation. But if you know when you plan to apply for a mortgage, it’s a great idea to get a jump start on preparing your credit as soon as you can.
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