Tips To Build or Improve Your Credit Score

Monday, October 07 at 12:35 PM
Category: Personal Finance

You want to buy a home, but you’re not sure your credit score is good enough or if you have a credit score at all. Most lenders require a minimum credit score of 620 for a home loan. Some programs require a minimum score of 640. Regardless of the minimum requirements it is important to know your credit score will affect the type of loan programs you qualify for, the amount of down payment required and the interest rate charged. Having a higher credit score can increase your buying potential.

Here are some tips to help you improve or establish your credit score.

  • Pay your bills on time. Credit scoring predicts how you will pay your bills over the next 24 months. Of course, frequent late payments or severe late payments (90 days or more past due) will hurt your score more than one missed payment, but all missed payments adversely affect your score. If you do fall behind, then work with your creditors to get a payment plan in place that will help you get caught up. Most lenders want to work with you to help you get caught up.
  • Closing Credit Card Accounts. Closing credit card accounts does not increase your credit scores. It can actually lower your credit score. If you close your credit card accounts your available credit limit decreases which will have an adverse impact on your credit. Additionally, closing your credit cards will cause those accounts to eventually drop off of your credit report. It is important to remember your credit score is calculated by your past credit history. If those accounts drop off of your credit report, then they will no longer contribute to your credit score calculation. Important clarification, closing a past due credit card will NOT make the delinquency go away. Your best option is to get current on the card and keep it open to allow your credit score to rebound with current payments.
  • Balances vs. Limits On Your Credit Cards. One of the most important things credit card companies do not tell you is your credit score can be negatively impacted if the balance on your credit card exceeds 30 percent of your limit. If your credit score have recently dropped, then this could very well be the reason. Let’s say your credit score has always been 750 and you recently found it dropped to 680. You have a credit card with a limit of $1,000 and you just charged $900 to your card. This is more than likely the cause of the decline in your score. By paying the balance down to $300 your credit score should rebound within 30-60 days.
  • Excessive Credit Inquiries. Borrowers that apply with many different lenders are considered higher credit risks than consumers with fewer inquiries. If you are in the market to buy a home, then avoid shopping for a car or a credit card in the 6-12 months prior to buying a home. This will also prevent you from having to explain and document every bank that pulled your credit.
  • No Credit Score. In order to establish a credit score you must have at least one account that has been opened for at least three months (possibly longer). You must have a least one account that has been updated with the credit bureaus within the last 6 months. If you do not have a credit score, then it can be difficult or impossible to obtain approval for a home loan. One of the easiest ways to get a credit account is by doing a loan against your savings accounts. You can open up a loan or a credit card utilizing your savings account as collateral.

If you’re not sure about your credit score, then you can obtain a copy of your credit report at www.annualcreditreport.com.* If you have questions about credit reporting or would like to discuss any of this information in greater detail, then please give us a call or stop by a branch. We would love to work with you on your loan!

Links marked with * go to a third-party site not operated or endorsed by Arvest Bank, an FDIC-insured institution.

Tags: Credit Cards, Credit History, Financial Education
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