A Few Points Can Make a Difference
The common FICO credit scores used throughout the United States fall between 300 and 850, and most Americans who get mortgages have credit scores between 650 and 800. With such a wide range of scores, it might seem like a few points don’t amount to much when it comes to qualifying for a mortgage. The trick, however, lies in how your lender brackets their credit score requirements.
For example, a lender might classify scores of 700–739 as “good” and scores of 740–779 as “excellent.” If your credit score was 737, then you would be just three point away from an excellent rating and better mortgage terms. There are a few ways you could quickly nudge your score up to get over the threshold.
1. Correct Errors on Your Credit Report
The three major credit-reporting agencies — Equifax, Experian and Transunion — are each required by law to give you your credit report for free once per year, at your request. AnnualCreditReport.com is the government-sponsored website for this service.
If you find errors on your credit report, you can file disputes directly with the credit-reporting agencies or make inquiries yourself to have your credit history corrected. You may discover that your credit score is being dragged down by something that has nothing to do with you.For example, if someone you know has a high credit card balance and they have named you as an authorized user on the account, that can affect your credit score even if you have never used that credit card.
2. Ask Servicers to Forgive Late Payments
Making a payment more than 30 days late will show up as a negative entry on your credit report, and if it was a late mortgage payment made within the last 12 months, it might even prevent you from qualifying for a new mortgage at all.
If the payment was late because of extenuating circumstances — some sort of personal emergency that was beyond your control — you can try explaining this to your servicer and requesting that they make a one-time exception. If they send an official letter of forgiveness to the credit-reporting agencies, the negative entry can be removed from your credit report.
3. Lower Your Credit Utilization Ratio
Your credit utilization ratio measures how much of your available credit you are using. As a general rule, you should try not to use more than 30 percent of your available credit. For example, if you have one credit card with a limit of $5,000, and your current balance is $2,900, you are using more than 50 percent of your available credit, which doesn’t look good on your credit report.
You could use some of your savings to pay the balance down to $1,500, but you will have to weigh your priorities. If you spend that money on improving your credit, you’ll have less money set aside for a down payment and closing costs. On the other hand, if improving your credit gets you a lower interest rate on your mortgage, it may be worth it.
Alternatively, you could ask the credit card company to raise the limit to $10,000, which would immediately lower your credit utilization ratio below 30 percent. Obviously, it would be ideal to improve your credit score without having to pay anything, but this all depends on the relationship you’ve built with your credit card provider.
Though it is possible to boost your credit score quickly in the situations we’ve covered here, ultimately you have to earn good credit by being responsible with your finances over a long period of time.