4 Ways to Improve a Credit Score for Refinancing

4 Ways to Improve a Credit Score for Refinancing

If you're looking to refinance on your home, you've probably also discovered that having a good credit score is an important factor in what kind of rate you receive. The better your credit score, the better your chances of qualifying for a lower mortgage rate on your home.

Related Blog: 5 Steps You Can Take to Help Lower Your Refinancing Rate

Despite what you might have seen on television commercials or on some website advertising, improving your credit score is not a quick process. And some of the quick-fix processes these advertisers recommend actually can harm your score. But there are steps you can take to increase your credit score, some of which will work faster than others.

If you follow these four steps, you should see your credit score climbing higher:

1. Fix Errors in Your Credit Report

The first and fastest step to raising your credit score it to request a free copy of your credit report from the three major credit reporting agencies and review the reports for any errors. In particular, look for any late payments that are listed that were not late and check balances on all of your outstanding debts to ensure they are current. If you find errors, file a dispute with the reporting agencies.

Fixing these mistakes should provide a quick boost to your credit score. Requesting a copy of your credit report does not damage your credit score. Always talk to a mortgage professional before making any drastic changes, because big changes on a credit report can sometimes have an adverse effect.

2. Pay Off Debt

If you can, try paying off some of your revolving debts, such as credit cards. Review all of your cards and determine which have the highest interest rates and focus on paying off those first.

Before going and paying off all of your credit cards, make sure you consult with a credit expert that will help put together a credit plan for you. Paying off all of your credit cards and having nothing to report to credit bureaus, can have a negative effect on your credit score.

3. Consolidate Debt

Generally, shifting your debt from one source to another doesn't improve your credit score, but if you can consolidate some of your debts into one account, that will often times help your score. Having the same amount of debt with fewer creditors can help you gain a few points.

This could involve transferring some store credit card debts into one general credit card. Store credit cards often carry higher interest rates than bank credit cards, but make sure you are consolidating at the lowest rate you can.

Signing up for new accounts to consolidate your debt probably is not a good idea. Opening new accounts can work against your credit score. Conversely, closing accounts also can cost you points, so as you pay off smaller accounts, don't close them.

4. Pay Bills on Time

If you have a history of paying your bills late, even by a few days, change your habits. Paying your bills on time, every month, boosts your credit score over time. You can't do anything to erase past late payments (unless they really weren't late and you fix that with the credit bureaus), but your current status weighs more heavily than your history, so pay on time.

For regular monthly bills, consider setting up automatic payments as this is one way to ensure you pay on time. This doesn't work as well with credit cards as they typically will take only the minimum payment. If you can't set up automatic payments on some accounts, set alerts in your calendar to make sure you pay them on time, or even a few days early.

If you have bills you've fallen behind on, such as student loans or certain credit cards, make your first effort to catch up on those payments. If you get into a collection situation, you cannot erase that from your history for seven years, so make arrangements with your debtors to get caught up before they turn your account over to a collection agency.

Increasing your credit score often is a gradual process, but one that is worth the effort as you begin your journey into buying a home. And the habits you gain in working to improve your score will serve you well for the rest of your life as you learn to become a better manager of your money.

If you're ready to refinance on your house or would like to get a better idea of where you stand in your ability to buy a house, contact us for a consultation about the mortgage and refinancing process.

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