Most lenders will set your interest rates based on your credit score, combined with a few other factors. Like it or not, your credit score is a calculation of how “worthy” lenders should find you when considering whether or not to give you a loan. If you are considering buying a home in the next couple of years, you want to have the best possible credit score to get the best possible interest rate. Heavy interest rates can lead to you paying tens of thousands of dollars more for a home over the life of your mortgage than you would if you had lower interest rates.
- Lower your debt-to-credit ratio. One of the biggest killers of credit scores is carrying a heavy debt-to-credit ratio. This means that you have a large balance on your credit cards, compared to a low credit limit. Paying down your credit card balances and only using the card occasionally, when you know you can pay off the charge, is the key to lowering this ratio.
- Stop using lots of different credit cards. If you have lots of different credit cards from lots of different companies, charging small amounts to all of those cards can affect your score. When calculating your credit score, agencies look not just at the total balance of debt and credit, but also how many different credit cards have balances. Using many different cards, instead of just one or two, can lower your score.
- Don’t try to remove old debt that you have paid off. If you’ve finished paying for a car, don’t try to get this debt removed from your credit report. Why? Because it proves that you can take on a big loan and pay it off.
- Pay on time. This might sound like an obvious statement, but even just paying a few days late every other month can wound your score. If you almost always find an overdue bill tucked in a stack of a papers somewhere, it’s time to come up with a better filing system and to put your due dates on your calendar.
Follow these tips and you’ll see that score slowly start to improve![/fusion_text]