The higher your credit score, the lower your interest rate and down payment can be on loans like mortgages and vehicles. Nowadays, your credit score could even determine if you are qualified for rent, and in some cases, a job. There are many strategies to increasing your credit score, but it is important to focus on improving your financial strength as you work towards stronger credit. Here are 3 steps that I recommend:

1.) First, check your credit:
The first step to improving anything like your health or finances is to determine your starting point. You also want to ensure there are no errors, or worse, identity theft issues.

Credit scores are a tricky number to understand. If your credit is pulled for two different purposes, you can have two different scores. The reason is that different reporting purposes use different scoring models. When you check your own credit, it is important to stick with the scoring models similar to the ones used to qualify for loans.

I recommend using www.annualcreditreport.com. You can access your reports free once per year. You will have to pay a small fee to include your credit scores on the reports. Using this service, your reports are pulled directly from the 3 credit bureaus.

 

“The quickest way to increase your credit score is to get payments current.”

2.) Settle any late payments or collections issues.
The quickest way to increase your credit score is to get payments current. For long term credit strength, settle any collections or past due payments if there are any.

When I was in college, I moved from my apartment near campus to a house in a quiet neighborhood. I did not know at the time but I was charged a small fee for returning my Comcast modem a few days late. I did not find out until a few years later when I applied for my first mortgage pre-approval that I had been sent to collections for $15.00. My payment history was good, but I had a collection to pay off in order to fix my credit score.

Credit Report Capture

In the above screenshot of a credit report, the 30, 60 and 90 day late payment history is highlighted. In this example, the borrower has 4 payments that were 90 days late and one payment that is currently 60 days late. The total amount past due is $214.

3.) Reduce Credit Clutter:
This is where personal finance comes into focus. If you have multiple credit cards with balances, it may be difficult to keep up with all the payments each month. It may not be a financial problem as much as an organization issue.

The second most effective way to increase your credit score is to manage your credit card balances. Financial advisers and counselors differ in their opinions on credit card debt and credit score strategies. I am not a fan of credit card debt and advise members to pay their credit cards off each month to stay out of debt. If you have to carry a balance, keeping it below 25% of the maximum limit (called credit utilization) is ideal for credit scores.

Credit Report Capture2
Most credit reports come with a “Credit Summary” which summarizes your total credit utilization. In the screenshot above, the borrower has $8,300 in available credit with $5,149 in total balances which equals 62% credit card utilization. This borrower should consider paying down their credit cards to increase their credit score.

“It is better to keep your oldest trade lines open as part of your score is determined by your length of history.”

Tip: If you decide to close one or two of your credit cards, choose the newest ones. It is better to keep your oldest trade lines open as part of your score is determined by your length of history.

To read more about the 5 factors that determine your credit score, you can read my blog, “Step 1 of Mortgage Qualification: Credit Scores”. To schedule a free credit report consultation with a Verity Credit Union financial services specialist, please call 206-361-5320 or email: mortgages@veritycu.com. This service is free with all mortgage, auto loan and credit card applications.

Jeremy Sankwich

Hello, I’m Jeremy – I manage the business development efforts for Verity’s mortgage department.  My passion is in helping Verity members down the path to financial freedom and home ownership. I try to go beyond the mortgage loan when helping members as I discuss real estate and financial education.

I have a degree in financial services and financial management from California State University.  I currently live in Auburn, WA with my wife and baby on the way.

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