7 WAYS TO IMPROVE YOUR CREDIT

If you understand your credit score, you’ll be able to secure competitive mortgage rates.

Credit scores, along with income and debt load, sum up how well a person has managed credit and whether the person represents a good risk for a lender. The most common credit-scoring model used today is Fair, Issac & Co.’s (FICO). The big three national credit reporting repositories – Equifax, Experian, and TransUnion – rely on it. The scores typically range from 300 to 900, with a higher score indicating a better credit risk.

To improve your score:

1. Wait 12 months after credit difficulties to apply for a mortgage. Some items are scored less heavily after 12 months.
   
   
2. Don’t order home furnishings or appliances during the mortgage application process. The balance owed will be counted as debt.
   
   
3. Pay back taxes in a lump sum to reduce overall debt.
   
   
4. Avoid finance companies, which charge high fees and rates. Their use is considered indicative of poor credit management, even if the borrower pays the loans back on time.
   
   
5. Shop for rates all at once. Multiple inquires from the same type of lender are scored as a single inquiry if received within a short time period.
   
   
6. Don’t open a lot of credit card accounts quickly to build a credit record. Doing so lowers the average account age and looks risky to the scoring model.
   
   
7. Pay down credit card balances. However, off loading credit card debt to a new card with a lower interest rate isn’t considered good credit management and also results in another credit inquiry that will lower your scored.