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How do I increase my credit score?
Mortgage Acuity
Mortgage Acuity
Published on May 26, 2022
FICO Score Components

How do I increase my credit score?

While it may not be the answer borrowers want to hear, repairing your credit is the best thing to do before you submit a mortgage application. A higher credit score could save you thousands in interest payments, and give you more loan options.

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Sure, these rules work as a guide for a good score, but they might not work for you. You may need to score a little more in some categories and a bit less in others. You may be past due on your minimum monthly payments and a bit more credit card debt than the list above allows, but that may be OK, as long as your other payments are good.

In order to grow your score, first, it's important to understand what's involved.

Payment history = 35% of your credit score.

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This is the main reason people are continually saying "pay your bills on time." It helps your credit score - a lot. Even if you pay the minimum payment due, you are paying on time. The single best thing you can do is pay on time. If you're bad with credit cards, you'll want to try to reduce your usage of them as much as possible.

Credit utilization = 30% of your credit score.

The amount of credit you're currently using is also known as your credit utilization. The higher your credit card balance is, the higher your credit utilization. For example, if you have a credit card with a $1000 limit and your balance is $800, you are at 80% utilization. This is calculation across all of your debts, so keep your credit cards as low as you can. It costs much more money to pay down your student loans or your car loan than it does to pay down credit cards for most people.

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Age of credit history = 15% of your credit score.

This is most often referred to as your average age of accounts. Having a long credit history is usually associated with a higher score, although there are exceptions. Having less than seven-year credit history is usually considered a "bad" credit history.

Credit mix/types of credit = 10% of your credit score.

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Having a mix of credit is a good thing because it will increase your score. Be mindful that it will also increase the amount of credit inquiries on your report and it will be responsible for 10% of your total score. It's best if you increase your available credit.

Increasing your available credit can help raise your score a little faster. This effort helps increase your credit score because you'll decrease your credit utilization. But be careful that you are using credit properly. With too much debt, it can prevent you from buying a house.

Most credit cards companies allow individuals to request as many credit card increases as they want without it causing a hard pull on their credit. This is something you can do periodically to help your credit score, by increasing your limit and keeping your balance the same, you decrease your utilization. The key here is to keep your balances the same.

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New Credit = 10% of your credit score

If you continually open new credit lines, your credit utilization ratio will be lowered. However, if you do it continually, you may see a reduction in your score. This is because the credit bureaus (Equifax, TransUnion and Experian) don't know yet how you will handle the new credit.

If you want to increase your credit to get a lower score do all of your inquiries on the same day, to increase your credit mix, adding more available credit to your report. This could raise your score since your utilization will be lower. Be careful and stick to the plan if you do this. It can go awry.

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Paying for deletions

Once you have a bill go to collection, it will show up on the credit report. This hurts your credit score.

Even if you pay the collection, its status will remain the same on your credit report as "Paid". The best way to help yourself is to ask the collection agency to delete the collection from your credit report when you make the payment.

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Before making a payment, get confirmation in writing.

Stay away from hard credit inquiries

A hard inquiry is an action you take that reports your credit to a consumer credit reporting bureau. This action affects your credit report and can cause damage to your credit score.

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When requesting a loan, check if the request is a hard or soft pull. Avoid doing anything that requires a hard pull around the time of applying for a loan. If you are shopping for a mortgage, use a lender that does soft credit checks for a pre-approvals. We do pre-approvals with a soft credit check.

Bad credit home loans are available

If you have a low credit score, you can still benefit from homeownership. Owning a home makes you a better credit risk overall. It shows you can manage long term debt.

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When building toward homeownership, it's important to assess the loan options and interest rates while still in the application stage, as this can help you save time and money later on.

Some good news

The credit bureaus announced recently that paid medical collections will not be on your credit report starting July 1st, 2022. Also, starting in 2023, they will not report medical collections under $500. And for medical collections over $500, they will delay reporting for 6 months giving you the time to remedy the situation. The announcement is here.

It's about time they started doing something. Medical debt affects 70% of Americans.

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