4 Simple Steps to Repair Your Credit Score

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Credit score is a large part in buying a home and improving your score could mean qualifying for lower interest rates and better terms. Unfortunately, most people only think about credit repair when it matters and are not proactive in repairing it ahead of time. Here are 4 simple steps to repair your credit score so you can qualify for the best home with the lowest rate.

4 Simple Steps to Repair Your Credit Score

Review your credit reports

The first step in repairing your score is examining it. The credit bureaus are required to give you a free copy of your credit report once a year, you just need to request it. Another way to check is to use a free online tool that gives you a breakdown of your scores. Using these tools you can see the areas of your credit in which you are excelling and the areas which could use some improvement.

Increase credit limits

Credit card utilization holds a lot of weight in determining your score and therefore increasing your limits is one of the best steps to repair your credit score. Generally speaking, carrying a balance of 50% of your available credit to will negatively impact your score. And maxing out your cards will definitely hurt your overall score. If you owe $2,500 on a card with a $5,000 limit, and you increase your credit limit to $7,500, your score will improve immediately. This drops your utilization percentage down which helps your overall score.

Pay down outstanding balances

Decreasing your percentage of available credit can make a significant impact on your score. Similar to increasing your credit limit, paying down outstanding balances helps your credit card utilization percentage. Paying off balances may be tough as a short-term improvement to increase your score, but it should be a long-term financial goal. Over time your credit score will increase and you won’t pay as much interest.

Pay off high interest “new” cards first

Since age of credit matters to your credit score and interest rates matter to your bank account, it’s a smart financial move to pay off high interest new cards first. Paying off high interest cards will help you save money over time since you will be saving the interest on those payments. And paying off new cards first will help increase the average length of credit, which will help your score. Using the saved money from these cards toward paying off other account will help you continue to lift your score (snowball effect), without really changing your spending mindset.

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What Are Soft Credit Checks?

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When you’re looking to finance something (a car, home, furniture, etc.) the odds are pretty high that the lender will do a credit check. But what does that mean and does that affect your score? Here’s what you need to know about your credit report and the differences between hard and soft credit checks.

What Are Soft Credit Checks?

Your credit report is one of the most important aspects of buying a home. It will tell the lender how much debt you carry and whether you’ve ever foreclosed on a home. It also includes some information such as name, address, and social security number. Your credit score is determined by taking into account all the information provided by your credit report. The higher your credit score, the lower the interest rates available to you.

Do Credit Checks Affect Your Credit Score?

Yes, hard credit checks could potentially lower you credit score a few points. Losing those few points may not seem like a big deal, but when you’re aiming to buy a home with the highest score, every point counts. No one wants to see that their score could have been improved by something as small as a credit inquiry.

Soft Credit Checks

Fortunately there’s a way for lenders to see your score without it hitting your credit score. This process involves a lender to get a general assessment of how credit worthy you will be going forward. If everything looks good, you can move to get pre-qualified with a lender and indicates that your score is favorable and you have a pretty good chance of getting approved for a loan.

By using a soft credit check, lenders can likely tell if a borrower is approved for credit before they do a hard pull. This helps eliminate an unnecessary hard inquiry. Another perk of soft credit checks is that you can pull a general score at anytime using free online credit monitoring apps. Many of these services also alert you if something suspicious happens on your credit report so you can take action immediately. Additionally, these apps break down areas of strength and areas of opportunity with your score. It will let you know if credit utilization could use some improvement, and if you have already hit your max hard inquiry count for this year. Frequently checking your score with one of the apps can help you improve your score to help prepare you to buy a home.

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