5 tips for improving your credit score

Are you getting yourself ready to enter the housing market as a home buyer? If so, there are likely a ton of numbers jumping around in your head, between your budget, offer prices, and closing costs. However, one of the most important numbers to get familiar with before you even enter the market is your credit score. This figure is essential in determining your future mortgage. It will impact your mortgage rate, and the lenders who will grant you financing. You may already know that a score of at least 650 is what you should strive for, as this is the lucky number that will open up the best opportunities for you. How do you get yourself there? Here are five important tips for improving your credit score before you enter the market!

#1 Understand your credit utilization

To improve your credit score, you first need to understand your credit utilization ratio. This represents how much credit you use compared to how much you have available. If you have a credit limit of $8000 per month, for instance, using $2000 per month would give you a utilization ratio of 25 per cent.

In general, conventional lenders prefer to work with clients whose ratio is below the 30 per cent threshold. Maintaining a lower balance indicates you have a strong control over your usage and don’t rely on your credit too heavily. Higher ratios can signal that you overspend or do not have the most responsible spending habits. 

However, you don’t want to have a utilization ratio that is too low, either! It is best if you can demonstrate a pattern of responsible usage. This gives lenders an idea of your habits and an assurance that you are a good candidate for a mortgage.

#2 Never pay below the minimum

One of the most important things to remember when paying your bills is you should always pay at least the minimum amount due. Late or missed payments will negatively impact your credit score. Even a single instance can delay your quest towards strengthening your credit. While you might be tempted to exclusively focus on a couple high-interest debts, you should not neglect any of your payments. It is better to pay the minimum amount on everything, rather than pay more than the minimum on some items, and less on others. 

If you have the ability to pay more than the minimum, you should definitely do so! Just be sure you aren’t sacrificing any other financial obligations.

#3 Increase your credit limit

On the surface, this may seem counterintuitive. However, increasing your credit limit can be a smart way to improve your credit score. The trick is to keep your spending levels the same, so your utilization ratio goes down. For example, if you currently spend $4000 per month with an $8000 credit limit, you have a utilization ratio of 50 per cent. If you can increase your limit to $10,000, but still maintain the same spending level, your ratio goes down to 40 per cent. 

If you tend to overspend, however, this is not the move for you. You could end up worsening your situation by increasing your debt levels and lowering your credit score, so be careful with this path!

#4 Keep old credit accounts open

If you are someone who likes to keep your finances organized, you might be tempted to close down old accounts you no longer use. However, think twice before you do so! If you have any long-standing accounts that show a history of responsible credit usage, it might be best to keep them open. This gives lenders assurance that you are a trustworthy borrower, and can manage your accounts well. Unless the accounts have super high fees, or are negatively impacting your credit, you should consider keeping them open for now.

#5 If necessary, consider debt consolidation

If you think you need more help managing your debts, you can discuss the possibility of debt consolidation with a mortgage broker. This process combines your debts into one lump sum, which you manage with one payment and one interest rate. It is designed to simplify the repayment process, and may allow you to access a rate that is lower than some of your current debts. However, this is a long-term solution for those who need more assistance improving their credit at a slower pace. It’s important to speak with a broker before taking any action to ensure this is the right path for you.

If you are working on improving your credit, keep in mind that change doesn’t happen right away! It can take time, effort, and patience to build up your credit score to where you want it to be. By making necessary changes and putting in the work, you will see your credit slowly and steadily start to trend upward. If you are ready to jump into the housing market, don’t hesitate to contact a mortgage broker! Let’s get started finding you the perfect mortgage product for your needs. 

If you have any questions about your mortgage, get in touch with us at Clinton Wilkins Mortgage Team! You can call us at (902) 482-2770 or contact us here.