A strong credit history can make the hunt for a new home easier and can save you money in the long run in the form of lower monthly rates on your mortgage and other loans. Whether you are renting or buying, the following tips can help you improve your credit score.
Request a copy of your credit score report – and make sure it is correct.
Your credit score report is the document that most lenders will look to to develop a sense of your credit behavior. Most consumers know this, but what many consumers do not know is how frequently errors appear on credit reports. Therefore, it is crucial that you both examine your credit report and correct any errors so that you can apply for loans.
Everyone is entitled to receive one free credit report annually from each of the three credit agencies. To get yours, you must go through the Federal Trade Commission’s website at www.annualcreditreport.com, or call 1-877-322-8228. (Note that the report itself is free, but that you may be asked to pay for the numerical credit score.)
Set up automatic bill pay. Payment history makes up 32 percent of your VantageScore credit score and 35 percent of your FICO credit score. The longer history you have of paying your bills on time, the better your score. Many people find that setting up automatic payments for recurring bills helps them to avoid missed payments.
Build credit through renting.
Historically, the three major credit agencies did not take rental histories and utility payment records into account. This prevented millions of people from getting a credit score. A recent change in the scoring model used by the three credit agencies will now take into account rental and utility payment histories. Now, your strong rental history can begin to work in your favor, helping you to raise your credit score.
Keep balances low on credit cards and ‘revolving credit.’ Big balances can hurt your scores, even if you pay your bills in full each month. A good rule of thumb is to limit your charges to 30 percent or less of a card's limit in order to increase your credit score.
Apply for and open new credit accounts only as needed. The next time a retailer offers you 10 percent off if you open an account at a department store, think twice. A spate of newly opened accounts can cause your credit score to drop. However, if you truly need a new line of credit, use caution and don’t jump at the first offer that comes your way. Instead, compare rates and fees offered through mail solicitation, on the Internet or at your local bank to make sure you are making smart credit decisions.
Don't close old, paid off accounts. This may seem counter-intuitive, but it is better to leave old, paid off accounts opened, even if you are not using them. According to FICO, closing accounts can never help your score and can in fact damage it.
Talk to credit counselors if you're in trouble. Struggling with debt and credit issues can be very stressful. Fortunately, resources exist to assist consumers who need help managing a debt. Unfortunately, there are a number of for-profit services out there that have less than stellar records. Using legitimate, non-profit credit counseling can help you manage your debt and won't hurt your credit score. For more information on debt management, contact the National Foundation for Consumer Credit (www.nfcc.org).
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