Finding ways to improve your credit score is always a great idea if you plan on purchasing a home in the near future. Understanding how to increase your credit score by a few points can make a big difference in helping you gain a loan with more favorable terms. Always taking the time to improve your credit score is well worth the effort and can save you a significant sum of money over the long-term.
Here are a few simple ways first-time homebuyers can improve their credit score.
Pay Off Existing Debts
The level of your existing debt plays a key role in determining your credit score. Typically, it is a good idea to focus on paying off the debt with the largest annual percentage rate (APR). Creating a list of all of your debts is important in helping you manage your budget and reduce your monthly expenses.
Always Pay Bills on Time
Another simple way to increase your credit score is to always pay your bills on time. Enabling automatic payments is a great way to stay organized and avoid forgetting to make a payment. Automatic payments are especially helpful if you are making multiple payments throughout the month.
Dispute Inaccuracies on Credit Report
Always keeping a watchful eye on your credit report is essential in staying proactive. You can easily check out your credit report on Experian, TransUnion, or Equifax. The federal law gives you the flexibility to check your credit report for free once per year from each one of these credit reporting agencies. Disputing any errors as soon as possible is critical in limiting the damage to your credit score.
Avoid Opening New Credit Accounts
A credit account that is less than a year old can negatively impact your credit score. Closing these new accounts after you pay off your balance is an effective way to raise your credit score. However, it is always important to avoid closing older accounts as it increases the length of your average credit history.
Understanding how to raise your credit score before purchasing your home is essential in helping you get the best financial terms available. Paying off prior debts, avoiding late fees, and checking out the accuracy of your credit report are only a few simple ways you can increase your credit score. Of course, improving your credit score will not happen overnight, but following these strategies over the long-term is always well worth the effort.