Are you looking to buy or rent a home? Are your credit score worries keeping you from achieving this goal? Don’t let a low credit score get in the way of owning or renting the house of your dreams!
Why Your Credit Score Matters
A good credit score can mean the difference between getting approved for a loan and being denied, or getting a low interest rate versus a high one. A good credit score can also get you approved to rent a house or apartment. A bad credit score can cost you thousands of dollars in interest payments throughout your life.
Why does a high credit score matter? Well, it’s an indicator that you can responsibly manage your finances and repay debt on time. When applying for a loan or rental agreement, lenders, property managers, and landlords will usually take your credit score into consideration to determine whether you are eligible for the loan or not.
A good credit score, which generally falls between 650 and 850 on the FICO scoring system, and can also determine whether or not you get approved for other types of loans, such as car loans or student loans.
What Causes a Credit Score to Go Down
While it can take years to build up your credit score to an acceptable range, it doesn’t take long to drag it down. Here are some examples of what can cause a credit score to plummet.
Late Payments
If you miss or forget to make one or more payments on time, it can have a big impact on your credit score. Most late payments remain on your report for seven years, so even if you make up the payment later, the damage is already done.
Too Much Debt
Having high balances on credit cards and other loans can lower your score because it shows lenders that you’re already stretched too thin and may not be able to take on any more debt.
Too Many Hard Inquiries
Every time you apply for a new loan or credit card, the lender will do a hard inquiry on your report. These stay on your report for two years and can ding your score by a few points each.
Closing Old Accounts
Closing an old account will lower your average age of accounts, which can hurt your score since lenders like to see that you’ve had credit cards or loans in good standing for a long time.
Tips for Improving Your Credit Score
If your credit score has fallen below what’s considered “good,” there are a few things you can do to improve your credit score.
Tip #1 – Auto Bill Pay
Set up automatic bill payments so you never miss another payment again. As you know, late payments can quickly affect your credit, so going automatic each month with credit cards, your student loans, or other debt can make a big difference in managing your money responsibly.
Tip #2 – Keep Balances Low
If you have to use a credit card, keep your balance(s) low. Your credit utilization ratio, which is the amount of credit you’re using compared to the amount you have available, should be below 30%. This means that if you have a $1,000 limit on a credit card, you shouldn’t charge more than $300 to it. The lower your credit utilization ratio is, the better it is for your score. Once you’ve paid off one debt, consider snowballing that payment toward another one so you can pay off the balance(s) faster.
Tip #3 – Streamline Your Credit
Don’t open too many new lines of credit at once. Every time you apply for a new credit card or loan, it results in a hard inquiry on your report. These can ding your score by a few points and stay on your report for up to two years. So if you’re planning on applying for a major loan soon, such as a mortgage, it’s best to avoid opening any new lines of credit in the months leading up to it.
Tip #4 – Check Your Report
Finally, check your credit report regularly for errors. According to a study by the Federal Trade Commission, one in four people has an error on their report that could potentially lead to them being denied credit or loans. You can get a free copy of your report from each of the three major credit bureaus—Experian, Equifax, and TransUnion—once per year. If you see any mistakes, dispute them with the bureau right away.
Don’t let a low credit score keep you down; implement our tips for boosting your credit score so you can buy or rent a home in the near future.