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“What can I do in the next 3 months to improve my credit score in order to qualify for a better mortgage?”

Today’s question comes from a young saver looking to buy her first house.

The question is:

“What can I do in the next 3 months to improve my credit score in order to qualify for a better mortgage?”

 


Transcript:

I ran little test to show just how important your credit score can be when it comes to applying for a mortgage. I applied for a 30 year fixed $250,000 mortgage once with a 740 credit score, and then again with a 640.

 The interest rate for a 740 credit score was 4.5%.

For 640, that rate jumped to 5.4%!

This might seem like a small difference, but it means more than $50,000 in extra interest charges over a 30- year mortgage!

So, improving your credit score is very important and worthwhile.

The 3 most important aspects of your credit score are:

1. Payment History

2. Length of credit history

3. Credit use

 

Improving these will have the biggest effect on your credit score. So how do we start?

 

First, Payment history. Keep making payments on time. Use auto-pay. Set calendar reminders, have a friend remind you. Whatever you do, don’t be late on bills. This is the most important factor of your credit score.

 

Next, credit history. It is hard to do anything that will instantly improve the history portion of your credit score. But you can cause yourself lots of immediate pain by cancelling old credit accounts. Even if your oldest credit card is not the best, don't close the account! Leave it open so that it will improve your credit history rating.

 

Lastly, Credit Use. This refers to how much of your available credit you are currently using. The goal is to use no more than 30% of your total credit. So, if your total credit limit is $10,000, keep your total balance under $3000. If you have low credit limits or high spending, pay off your balance weekly instead of monthly to ensure you are not using too much of your credit.  

 

Do these 3 things and you will be on your way to getting the highest score possible.

Matt Hylland