You know that your credit score matters to your next mortgage or financing transaction. You have heard it on the news, read about in magazines and newspapers and now it is time to do something about it. This knowledge is a powerful thing as it helps you think about your credit transactions more carefully and how they impact your credit score and your credit worthiness. All financing transactions, whether consumer or commercial have one thing in common - there is a someone lending money and building in an expected risk of not receiving their principal back. This risk is reflected in the interest rate that is charged on the borrowing. Financing transactions have the advantage of being collateralized (or financed with the property as a means of repayment for the loan). This is why you will almost always find that mortgages carry much lower interest rates than automobile loans or personal unsecured lines of credits such as credit cards.
So knowing that your credit score is directly correlated to the interest rate that you will be paying on your loan, here are some of the things that you can do to help increase your credit score.
Pay off your outstanding credit cards and home equity credit lines - one of the key determinants of your credit score is your 'credit utilization' or the percentage of your available credit lines that you currently have in use. If you are tapping the majority of your available credit lines, there is a high probability that you may be overstretching a bit financially.
Pay all of your outstanding credit on time - timely payments help create a strong payment history and is another important driver of your credit score. Your payment history represents more than 1/3 of your overall credit score, with the highest weighting being given to your most recent payments. To put this another way, would you lend money to someone that is not paying their other bills on time? You probably would not, at least not without putting a significant premium on the interest rate that you receive.
Carefully check your credit reports - it is very common for your credit reports to have mistakes or incorrect information. At a minimum, make sure that the information that you are being evaluated on is current and correct. If you do find something on your credit report that is incorrect or is missing, you should dispute the mistakes by contacting the credit bureaus directly. Each credit bureau will describe their dispute procedures on their websites and will have 800 #'s set up to answer your questions. The bureaus are required by law to investigate any disputed items and these investigations will usually take place within 30 days of your request.
Don't close accounts that you do not use often - One common mistake is to think that by reducing your credit availability, it will improve your credit score. This tactic tends to hurt your credit utilization rate and could actually hurt your credit score.
While these are common sense tips, it is surprising how many consumers do not get these things right as they get ready for a major financing transaction. Building your credit is not an overnight task and long-term planning and attention to details are important in helping you reach your financial goals and to score the mortgage or loan that you desire.
