If you’re planning to buy a home or condo for the first-time in the near future, your credit score is going to play a big role in the process. While there isn’t a uniform algorithm or equation used by lenders and other financial companies, your credit score tends to be similar across the board and is based on a variety of factors.
For now, we won’t take a deep dive into how a credit score is determined. But if you’re somebody that already knows your credit score could use some work, here’s a quick look at several ways to make that happen.
Pay Your Bills on Time
It sounds easy but paying your bills on time will have a positive impact on your credit score. Payment performance is usually a strong indicator of what type of borrower you are and what kind of a borrow you project to be in the future, which is why lenders and credit companies take it so seriously.
Keep Your Credit Card Balances Low
Having credit card accounts open isn’t a bad thing, unless you’re maxing them out regularly. Credit utilization ratio is also considered when calculating a credit score, which is essentially all of your credit card balances divided by the total credit limit of these accounts. So for example, if you have $3,000 in credit card balances but also have a total credit limit of $12,000, your utilization ratio is 25%. Generally speaking, lenders prefer to see ratios of 30% or less.
Don’t Close Unused Accounts
To piggy back off the credit utilization ratio tidbit, also be sure not to close any unused credit card accounts before applying for a mortgage in order to help maximize your ratio and also your credit profile.
Don’t Apply For New Credit Cards Either
Finally, don’t apply for several new accounts either, just as a way to improve your credit utilization ratio. Each time you apply for a new line of credit will result in a hard inquiry on your credit report; and too many hard inquiries will hurt your overall score.