Before buying my last two homes I took steps to quickly fix my credit score and improve the mortgage rates available to me. In today’s economy, especially, banks require higher and higher credit scores to offer a loan at all. Furthermore, when talking about large loan amounts such as mortgages, even half a percent can translate to hundreds of dollars every month. That is why plan your money carefully to avoid credit pitfalls, then know some clever steps to keep your credit scores on good shape. Here are the tips I followed to quickly fix my credit score before I submitted my mortgage applications.
Move Credit Card Balances to Your Spouse
The first step to quickly fixing my credit score required that I give myself some maneuverability with the credit cards I had. My husband stepped in to help by balance transferring one of my credit cards over to one of his. As a result, on paper I now owed less debt, which would translate to a better debt-to-income ratio and a quick fix for my credit score.
Lower Your Monthly Payments
The card that my husband emptied was offering an attractive promotional rate on balance transfers. I used it to empty another of my credit cards, one with a much higher interest rate. A lower interest rate not only meant that I could pay the debt faster but that my monthly minimum payment would be lower. As a result my overall monthly liabilities decreased in relation to my income, a fact that increased my credit score.
Credit Line Increase
You may have heard that your credit score will suffer if your credit cards are filled to the max. This is true, and one way to create this impression is to contact your current credit card company and ask for a credit line increase. If you double your credit line, the same debt will now appear to fill only half your available credit, which will raise your credit score. This said, I decided against this step because I knew that a credit line increase would count as a hit on my credit, which will drop my score by a few points. I didn’t think my credit card company was likely to offer me a sizable credit line increase, and I didn’t want to end up worse off.
Though consolidating many credit cards under a single one will increase your debt-to-credit-line ratio on that card, there are good reasons for doing it. Firstly, a few cards with zero balance will far outweigh the detriment caused by one full card. Secondly, one revolving credit line instead of three or four will further raise your credit score. The way I did it was call all three of my credit card banks and find out which of them had the best balance transfer offer at the moment. Then I emptied the other two cards into the best one. As a result my overall minimum monthly payment for the same amount of debt was greatly reduced, which raised my credit score further.
Take a Personal Loan
Revolving (credit card) debt is the black sheep of the family when it comes to your liabilities. If you can obtain a personal loan from your bank or credit union with which to pay off your credit card debts, your credit score will rise despite the fact that the debt amount didn’t change. That’s because personal loans, like car loans, are given a different weight in determining your credit card score.
Sell Assets Short Term
You’ve probably heard this advice, and you may think it’s useless, but consider it again for a moment. Is there something you can sell, even short term (to be replaced later), that will help you reduce your debt further? I’ve sold items on Craigslist for free, as well as at a garage sale at my friend’s house.
Fix Your Credit Report
Finally, order your credit reports at the following links: Equifax, Trans Union and Experian (or get your free once-annually credit report through this government website). Review your report and dispute any inaccuracies. However, if you see inaccuracies that may cause your score to be higher, leave them for now. For example, if your credit card company recently reduced your credit limit but hasn’t updated your credit report yet, leave things alone.
In conclusion, I’d like to highlight the danger of artificially increasing your credit score. Not only will you receive better interest rates on your loans, you will also be offered higher loan amounts. Be careful not to borrow more than you can handle. I know that the temptation can be great, but it helps to remember that your true debt has stayed the same, despite what your credit score might say.