Being a first-time homebuyer is tougher these days, as banks and mortgage lenders are tightening their lending standards. While credit requirements for a mortgage can vary, depending on the type of loan and lender, a credit score of 620 is typically the minimum credit score needed for a conventional loan. However, lenders are raising the required minimum credit score and are now looking for at least a 700 credit score from new borrowers.
So, if you’re exploring the housing market and looking to buy soon, you may need to boost your score fast to meet these new requirements. While good credit isn’t built overnight, there are still some things you can do right now to boost your credit score in record time. Check out these strategies for how to increase your credit score quickly, so you can move forward in your homebuying journey.
Clean up your credit report
While this may not be your idea of an enjoyable weekend or afternoon activity, start by getting a copy of your credit report and looking for any mistakes. Incorrect information on your credit reports could be dragging down your scores.
First, find out your credit score by getting a credit report. There are sites where you can get a free credit report like AnnualCreditReport.com. They provide credit reports from the three credit bureaus Equifax, Experian, and TransUnion at no charge to you. You will then need to look through those reports, inspecting them for mistakes. Errors could include an incorrect name or address, credit lines that don’t belong to you, duplicate entries, and incorrect account status.
If you find a mistake, you’ll also need to bring it up with each bureau. Each one has a slightly different process for disputing errors, but you should be able to easily find instructions on their websites. Alternatively, you could enlist a credit repair service to help get those errors fixed so you can raise your credit score quickly.
Pro Tip: Correcting errors on your credit reports are not only important to your credit profile but it is also your legal right as a consumer to have any accounts on your credit report, reported accurately. – Classy Credit Repair Services
Lower your credit utilization ratio
You might be wondering, just what is a credit utilization ratio? A credit utilization ratio is how much you currently owe divided by your credit limit. For example, if you typically charge up a $1,500 credit card balance each month and your total credit limit across all your cards is $10,000, your utilization ratio is 15%. This ratio can impact up to 30% of your credit score, making it a major player in your overall credit score.
Pay down your balance
It’s recommended to keep your total credit utilization ratio below 30%. So if your credit utilization rate is high, paying down your credit card debt is a quick way to lower that rate, boost your score, and proceed in your home buying process.
Pro Tip: Most experts recommend two approaches that could quickly eliminate debt. You could focus on the smallest bill and pay that account off as fast as possible. Once paid, move to the next bill with the lowest balance. The next option is to target the bill with the highest interest rate. As you pay the high-interest accounts off, you will ultimately save money in the long run by not throwing away money monthly in interest. – Masters Credit Consultants
Make multiple payments each month
You may think you are managing your credit card great because you always pay off your card each month. The problem is, creditors are only reporting balances to the reporting companies once a month. So if you run up a high balance or max out your card each month, it will look like you’re overusing your credit.
For example, assume you have a credit card with a $2,000 limit and you use it for everything. It comes time to pay your bill – you owe $2,000 but you pay it off like you always do. However, depending on what day of the month the credit card company reports your balance, it may look like you have a $2,000 limit and a $2,000 balance every month. That means you have a 100% credit utilization ratio.
You can easily solve this problem by breaking up your payments. You can keep charging everything to your card, but make payments at least twice a month to keep your balance low, which will result in lowering your credit utilization ratio.
Ask for a higher credit limit
When your credit limit goes up and your balance stays the same, it immediately decreases your utilization. Of course, this only works if you keep your balances low.
Pro Tip: Call your card issuer and make sure they are able to increase your limits without performing a hard credit inquiry as that can lower your scores. You can ask for an increase in credit limit usually every 6 months. – Credit Lynx
Become an authorized user
You can also boost your credit score fast by piggyback on someone else’s. If you have a relative or a close friend with excellent credit history, consider asking them to add you as an authorized user on one of their accounts. The cardholder doesn’t have to let you use the card – or even give you the account number – but you will still benefit.
Remember, while authorized users do build credit, that credit can be good or bad. It is dependent upon how the primary account holder manages balances and bill payments. So you only want to become an authorized user on an account owned by someone responsible and that you trust.
Pro Tip: Before requesting or adding someone as an authorized user, make sure to follow these three criteria: 1) Card was issued a minimum of 2+ years 2) Balance is below 30% of available credit 3) 100% payment history. – Pyramid Credit Repair
Don’t open new accounts
Every time you apply for a line of credit, the lender will pull your credit report as part of the application process. This is called a hard inquiry and in the short term, it can hurt your credit score. A hard inquiry is placed on your credit report even if you’re not approved and even if you eventually decide to not accept the credit card.
Pro Tip: Certain types of loans, namely installment contracts such as an auto loan, can initially bring down your credit score for several months before the payments begin to help your credit history. In addition to this, the lender will take into consideration your DTI, Debt To Income Ratio, and a new large monthly payment can possibly change those ratios and place you into a category where you no longer qualify for the loan. It is best to wait until after you have completed your home purchase before you make any other big financial decisions. – Credit 360 Consulting
Pro Tip: Revolving accounts say to creditors and credit bureaus that you are a disciplined consumer and can be trusted with credit accounts. So if you aren’t looking to purchase a home right away and instead have several months to make long-term improvements to your score, consider obtaining revolving accounts such as credit cards, personal lines of credit, or retail store cards with high limits that report to the 3 major credit bureaus. – Credit Repair of Florida
Don’t close any credit cards
If you’re a first-time homebuyer rushing to improve your credit score to buy a house, be aware that closing cards can make the job much tougher. Closing an account immediately reduces your available credit. If you have outstanding debt, this will cause your credit utilization ratio to jump up and therefore, your credit score to drop.
Pro tip: Closing a credit card account with a high credit limit could have an especially negative impact on your score, particularly if you are carrying a high balance on another card. – AZ Credit Medix
Pay bills on time
No strategy to bump up your score will work if you end up paying your bills late. Why is this? Your payment history makes up 35% of your credit score ― the most heavily weighted factor. So not making payments on time is the single worst thing you could do. Reminder – you’ll want to pay all bills on time. Not just credit card bills, but also your student loans, rent, utilities, phone bills, and so on.
Pro Tip: Sometimes when payments are late, the creditor will automatically raise the interest rate being charged and this creates a greater problem than just being late. A simple solution to avoid being late on payments is to set up “auto pay” plans and to consider using a budgeting application such as Mint, or Everydollar. – Graves Financial Wealth Management
Pro Tip: If you end up with debt that becomes a collection account, it’s in your best interest to pay or settle the debt as quickly as possible. To get the best deal when paying a collection its best to have a lump sum on hand. Call the collection agency and offer them 50% of the debt, you may have to do a little negotiation, but you should be able to settle for around 65% of the debt. Also, ask if they will delete it from your credit report. Some will, and some won’t, but always ask. – Credit Restoration of Texas
How long does it take to improve a credit score?
After reading through these tips you are likely wondering – “how long exactly is it going to take to improve my credit score?” Unfortunately, there’s no way to predict the exact timing for when your credit score will go up or by how much. So while you wait, remember to be patient, implement the above tips, and continue checking your credit score to see how it reacts. By following these steps you should be well on your way to improving your score and purchasing your first home.