Are you looking to buy or rent a house? Is worrying about your credit score preventing you from achieving this goal? Don’t let a low credit score get in the way of buying or renting your dream home.
Why Your Credit Score Matters
A good credit score can mean the difference between being approved and rejected for a loan, or getting a lower interest rate versus a higher interest rate. A good credit score can also get you approval to rent a house or apartment. A bad credit score can cause you to lose thousands of dollars in interest payments throughout your life.
Why does a high credit score matter? Well, this is an indicator that you can responsibly manage your finances and repay debts on time. When applying for a loan or rental agreement, lenders, property managers, and landlords will usually take your credit score into account to determine if you are eligible for a loan.
A good credit score, which is generally between 650 and 850 on the FICO scoring system, and can also determine whether you get approval for other types of loans, such as car loans or student loans.
What Decreases a Credit Score?
Although it may take years to build your credit score to acceptable limits, it doesn’t take long to pull it down. Here are some examples that can cause credit scores to decrease.
Late Payments
If you miss or forget to make one or more payments on time, this can have a big impact on your credit score. Most delayed payments remain on your report for up to seven years, so even if you pay later, the loss is already done.
Too Much Debt
Keeping high balances on credit cards and other loans can lower your score because it shows lenders that you are already in great difficulty and may not be able to take out loans anymore.
Too Many Hard Inquiries
Every time you apply for a new loan or credit card, the lender will inquire hard on your report. These stay on your report for up to two years and can reduce your score by a few points.
Closing Old Accounts
Closing an old account will lower the average age of your accounts, which can make your score worse because lenders like to see that you have long had credit cards or loans in good standing.
Tips for Improving Your Credit Score
If your credit score has fallen below a score considered “good”, there are some things you can do to improve your credit score.
Auto Bill Pay
Set up automatic bill payments so you don’t miss any payments again. As you know, late payments can affect your credit immediately, so automatic payments with credit cards, your student loans, or other loans every month can make a big difference in managing your money responsibly.
Keep Balances Low
If you have to use a credit card, keep your balance low. Your credit utilization ratio, which is the amount of credit you are using compared to the amount you have available, should be less than 30%. This means that if your credit card has a $1,000 limit, you should not charge more than $300 from it. The lower your credit utilization ratio, the better for your score. Once you’ve paid off one loan, consider putting that payment into another loan so you can pay off the balance faster.
Streamline Your Credit
Don’t open too many new credit lines at once. Every time you apply for a new credit card or loan, it results in a hard check on your report. These can lower your score by a few points and stay on your report for up to two years. So if you plan to apply for a larger loan, such as a mortgage, soon, it’s best to avoid opening any new lines of credit in the months preceding it.
Check Your Report
Finally, check your credit report regularly for errors. According to a Federal Trade Commission study, one in four individuals report an error that could potentially lead to them being denied credit or loans. You can get a free copy of your report once a year from each of the three major credit bureaus Experian, Equifax, and TransUnion. If you notice a mistake, immediately dispute it with the bureau.
Don’t let a low credit score overwhelm you; apply our tips to increase your credit score so you can buy or rent a home soon.
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