Merry Christmas and I hope you and your family are well.
One of the most common questions I receive from our clients is “How can I improve my credit score?” A good credit score can be the White Knight that saves you thousands of dollars by receiving a lower interest rate and reduced loan fees. In contrast, a lower credit score can be the kiss of death which may result in your loan not being approved or receiving a higher interest rate and additional loan fees.
I have listed below five simple ways to save money and improve your credit score.
1. Pay your creditors on time. A significant portion of your credit score is weighted on your payment history. Mortgage credit history is weighted the highest due to the size of the loan.
2. Keep credit card balances below 50% of the credit card limit. As an example, if your credit card limit is $1000 your credit card balance will be below $500 or less. The lower the balances the better. The best scenario is to pay off the balance each month.
3. Limit the amount of charge cards and loans. Excessive open credit cards with balances greater than 50% of the credit limit and large amounts of installment debt (i.e. auto loans) will reduce or limit your credit score from increasing.
4. If you are applying for a loan limit the amount of credit inquiries made. Each time you apply for a loan the bank or lender will complete a credit inquiry. Too many credit inquiries in a short period of time may reduce your credit score.
5. Avoid co-signing for loans. Co-signing for a loan means you take on the risk the lender does not want. The person who has applied for a loan does not qualify and the lender is requesting for additional support from a co-signer. When you co-sign for a loan you become equally responsible for the loan repayment and your credit score will be impacted as mentioned in above #1-4.
In conclusion, I use the analogy of your credit score being similar to having children. Your credit score will be with you until you die (so will your children) and effort must be made to make sure your credit score is protected. Neglecting your credit can cost you thousands of dollars when you decide to obtain a mortgage loan.
If you have any questions or would like more information on credit or maybe thinking of purchasing a home or refinancing your mortgage loan, please feel free to contact me.