How to Fix Your Credit Before Applying for a Loan

If you are thinking about applying for a mortgage or an auto loan, understanding your credit score is one of the first steps. Your credit score will determine what rate you will get your mortgage at, or if you even get it at all. If you have bad credit you may be rejected or pay a much higher interest rate on your mortgage. There is good news however, a low credit score is not permanent, and there are steps you can take to raise your credit score. So whether you are in danger of not being approved for a mortgage, or you just want to improve your score in hopes of a better interest rate, here are some simple steps to follow to raise your credit score.

Check your score
This seems like a no brainer. The very first step is to see where you sit. Pull a credit report and check it for errors. Your credit report will include all of the criteria that factors into your score. Check your report to make sure account balances add up and there are no incorrect accounts reporting in your name.

Keep your credit balances low
Keep an eye on your credit card balances. The sweet spot to improve your credit is to utilize 30% of available credit. Essentially this means if you have a credit card with a credit line of $1,000 the best balance to keep on it is $300. You also want to avoid large fluctuations on your credit card, this means not charging any large unnecessary purchases to your credit card. If you have multiple credit cards, consolidate them down to one or two, this will make them easier to monitor.

Pay bills on time
This also seems like a no brainer, but essentially your credit score is letting lenders know that you have a history of paying back money you borrow. Late payments can stay on your credit report for up to 7 years. If you have a hard time making payments on time, set up payment reminders or automatic withdrawals.

Rebuilding your credit can take some time. You do not want to learn you have a low score when you find your dream home, so if you are even thinking about looking for a home it’s a good idea to check your credit and work towards starting to improve it. Payment History and Credit Utilization make up 65%  of your credit report, so consolidating debt, keeping credit balances low, and paying on time can make a huge impact on your credit score.

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