This is a common question. And it all depends on where you’re starting from. If you’ve faced a foreclosure, short sale or bankruptcy in the past 12 months, your credit score probably needs some serious repair, and this can be done, but it will take some discipline and time.
If you have 2-3 years, you should be able to not only repair your credit score but your overall credit in general. Rebuilding your credit does take time but with good payment history, paying things on time and establishing an abundance of credit, in general, will naturally increase your score. I recently had a client that had a credit score of 480. This is quite low but it’s due to a short sale and bankruptcy less than 18 months prior. The best way to improve your credit history and score overall is by paying on time, not canceling credit cards that have a zero to low balance (so that it shows that you have available credit) and pay all bills, rent, and utilities on time. It’s important to set up a payment plan either with a credit consolidation company or on your own to get credit cards and unsecured loans paid off as quickly as possible.
However, there are scams that offer to repair your credit but end up charging you an exorbitant fee and monthly interest rates that are much higher than your existing loans.
The best way to improve your credit is to settle negative outstanding obligations and pay all your bills, utilities, and loan payments on time for at least two years.
If you have 12 months.
If you have about 12 months to prepare for a home loan or refinance and you want to improve your credit and your credit score, pay off as many credit cards as possible. If you have multiple credit cards, let’s say anywhere from 6 to 10, it’s important to pay off as many as you can or all of them and then cancel just a couple of them. You’ll want to have some credit cards with available balances and no payments so that it shows you are a responsible credit owner.
Related Post: Can I Still Buy a Home with Bad Credit?
If you are trying to raise your credit history, you’ll want to pay off credit cards first before installment loans. By paying off an installment loan such as a car payment, it can adversely affect your FICO score. Having a good balance of credit card payments and installment loans and then showing a history of paying off those credit cards with on-time payments on your installment loan, will show wonders that you are a responsible loan applicant.
If your credit score is between 600 and 700.
If you already have a pretty decent credit score of at least 600 or even better yet, 700, and you simply want to raise that credit score, get a copy of your credit report and history and go over anything that might be holding you back when it comes to increasing your credit score. This could be an error or mistake that needs to be corrected and fixed, it could be a balance on a card you never even knew you opened, or it could be some past collection issues that are holding you back. This is most likely the case, especially if you have been paying on time or paying off your credit cards for quite some time.
** If you’re planning on buying a house within the next year and you have a pretty decent credit score, don’t take out any new loans in the meantime. You want to keep your credit score as high as possible so that you get the best interest rates.
For more questions on increasing your credit score and how to specifically handle your finances, contact my office today.