According to Realtor.com, payment history accounts for 35 percent of your credit report score, followed by the amount you owe, the length of your credit history, new credit, and the different types of credit you hold. Your credit score is the key to getting a stable loan with the best interest rate possible.
Fortunately, there are ways to help give your credit a boost if you have poor financial history or just want to snag the very best home loan on the market.
Here’s how to get started:
Understand Your Credit Score
Before you dive into research about your credit score, know you are legally allowed to check your score once a year at no cost. You can request a report from one of the three major credit reporting agencies: Equifax, Experian or TransUnion.
Next, understand how your credit score is calculated. Your credit payment history, the type of credit you have, and outstanding debt are all a factor. The length of your credit history is also at play, which could start as early as when you were a teenager and opened a credit card account.
Your credit score, also referred to as a FICO score because most scores are produced from software developed by Fair Isaac Corporation, ranges from 300 to 850. Banks and other financial lenders look at your score to determine the risk of giving you a mortgage — the higher your score, the better your credit.
Repair Your Credit
Repairing credit can feel daunting, but it isn’t impossible with some careful planning and effort. First, start by studying your credit report. You can dispute mistakes or older items at no cost. The reporting companies may be slow to act, but they are ultimately required to fix any inaccuracies.
Next, set-up a credit monitoring tool or service, like LifeLock, to monitor any identity theft attempts. Identity protection services can help minimize the damage and repair credit before it’s too late.
Next, pay down your debt and look into changing your financial institution. Unlike banks, credit unions are not-for-profit and have almost no monthly fees. They can help secure a new line of credit, loan, and mortgage. A secure line of credit can be as simple as a small loan or credit card that you systematically pay back with the purpose of improving your credit. Credit unions are also more likely to work with you if you have financial issues, and can often be more lenient than a typical bank.
Save Money
Now that you’re working on getting your credit report in better standing, it’s time to focus on saving money. Stick to a budget and trim down your living costs by canceling your cable service, renegotiating your car insurance, and using a personal finance app like Mint to carefully monitor your finances.
Build up your savings account even more with a supplemental income. If you have extra space in the house, consider renting out a room. You can also explore additional earning opportunities through tutoring on weeknights, picking up a seasonal part-time job, or selling your crafts on Etsy.
Ask your bank or credit union about money market accounts, mutual funds, and certificates of deposit to earn interest on your savings.
