If you are looking to buy a home, and need a loan, your credit score is very important. Your credit score is a numeric value that displays your “creditworthiness” to lenders. If your credit score is not up to your required expectations, or you just want to improve it before applying for a loan, there are some basic things you can do to increase your credit score.
#1: Pay off ANY outstanding debt.
Pay off any debt you have in full prior to application. This is one of the main ways you can improve your credit score. First off, this will improve your credit utilization ratio, which is something lenders look at. This ratio is the amount of “spending power” you utilize on your credit card. The goal is to have a small amount of spending on your card to show that you do not rely on your credit card(s) heavily. Second, if you pay off outstanding debt, you will have more availability to take on more. This is another factor lenders assess when analyzing your credit report.
Note: If you cannot pay off your debt without taking on more debt, you are best to follow Tip #3, and pay your bills on time.
#2: Do NOT apply for too much credit.
This one is simple- do not apply for more credit cards. Some people apply for more credit cards for a variety of reasons; however, this puts a hard inquiry on your credit report. Again, lenders look at this when assessing your report and the less hard inquiries you have, the better.
#3: Pay your bills on time.
Please pay all your bills on time… yes all of them! When a lender looks at lending you a loan, they want to assure you will be able to punctually repay the loan to them. Accordingly, they will heavily evaluate how you repay your other loans and bills.
Bottom Line
Ultimately, your credit score determines a lot and is important to your financial health. Work with a financial professional to determine your credit score and work towards improving it if needed. Download our DML app to get preapproved for a loan once you are content with your score.
