How to Boost Your Credit Score

Learn how to improve your credit score and the factors that go into it.

Your credit score is an important part of your financial life, especially if you’re thinking about buying a home. Your credit score is determined by five main factors and is used to determine whether a lender will grant you a loan, how much they’ll lend you, and at what rate you’ll accrue interest on it. We’ve broken down the five factors that go into your credit score and how you can boost it before you get a mortgage.

Payment History

The first thing that lenders are going to look at when determining how good your credit score is and how large of a loan they are willing to give you is your payment history. Have you consistently made payments on your current credit accounts? Do you always pay the bare minimum, or do you pay more? Lenders want to know that you are a reliable lendee that is not going to default on the loans they give you and past performance is the best indicator of this. The easiest way to boost your credit score is to pay all your bills on time. If you have a hard time remembering to make payments, set up auto-pay for your bills so the money is just taken out of your account when the payment is due. If you’re behind on any bills, bring them current as soon as possible so that it stops negatively affecting your score.

How Much Credit You Use

Your credit utilization ratio is an important number in credit score calculations. It’s found by adding up all your credit balances and dividing it by your total credit limit. Lenders don’t like to see that you’ve used up almost all your credit limit at any given point because that indicates that you may be living outside your means and relying on credit to get by.

On the other hand, if your ratio is extremely low, then it doesn’t really give a lender any insight about how reliable you are about making payments. A good ratio is typically 30% or below. To find out your average credit utilization ratio, look at all of your credit statements from the past 12 months and add up the total balances, then divide by 12. If your credit ratio is above 30%, work towards paying off that debt in order to increase your credit score.

Length of Credit History

The longer you’ve used a credit card and made payments, the better your score will be. This is because there’s been more time for you to prove that you are trustworthy and will make payments on time, which is something that is extremely important to lenders. There’s not much you can do to improve this, but if getting a mortgage is something that you want to aim for in a few years, start building up your credit now so that your credit history is as long as possible.

New Credit

Whenever you open a new line of credit, an inquiry is performed on your credit report that can negatively affect your score. This includes applying for a new credit card, car loan or other types of loans. Many people make the mistake of opening up new lines of credit to increase their overall credit limit and decrease their utilization ratio. However, making multiple inquires for credit is more harmful than having a higher utilization ratio because it looks like you are unable to pay off your current credit amount and need to use more credit in order to make payments. If you are looking for a new line of credit, such as for a home or car, do it within a 30-day period so that it only counts as a single pull. Credit companies can recognize the difference between a search for a single loan and multiple credit line inquiries.

Types of Credit

Loan companies like to see that your credit is diversified among different types of credit. A good credit mix often includes credit cards, auto loans, student loans and more. Having a diverse range of credit looks better than, say, having all of your credit being from credit cards. This is similar to diversifying risk in an investment portfolio; those who have a range of credit outlets are more reliable and less risky than those who don’t. Keep in mind though, if you don’t have a diverse amount of credit types, don’t go opening a bunch of accounts to make up for this because it will hurt your score by getting too many inquiries.

Overall, your credit score is an important factor in whether or not you’ll be able to get a good home loan. Following these tips can help you to boost your credit score, but if you have any questions, Galaxy Lending Group is here to help! Speak with any of our qualified loan counselors to determine which loan is best for your credit situation.