Thinking about buying a house? You’re going to need a good credit score. It’s not just a matter of whether you’ll get the loan; people with excellent credit often get loans with lower interest rates than those with poor credit scores.
So how do you know if you have a good score? Credit scores range from 300 to 850. If you’re above 800, you have an “excellent” credit score. Scores between 740 and 799 are considered “very good” while those ranging from 620 to 739 are generally rated “good” by credit reporting agencies. If your credit score sits between 580 and 669, you have a “fair” rating and are considered a “subprime borrower.” This means you may not be able to qualify for the better loans. And if your credit score sits below 580, you may not be able to get a loan at all. You can pull your credit report for free once each year through the official AnnualCreditReport.com.
There are ways to boost your credit score, however. The reporting agencies look at five criteria when determining scores:
- Payment history (35%)
- Credit usage(30%)
- Age of credit accounts (15%)
- Credit mix (10%)
- New credit inquiries (10%)
The most important thing you can do is pay on time — every time. You’ll also want to not use more than 30 percent of your available credit. Note that you do want to use credit, however. No credit utilization means the companies don’t have any way to rate what kind of borrower you might be. Are you over that 30 percent threshold? Ask your credit card company for a limit increase.
If you do have what is considered a thin credit file, there are several ways to fatten up that report — including using your banking and rental history through the UltraFico program (banking) and an app such as Perch that will report rent payments to credit bureaus for free.
While it may be tempting to close unused credit card accounts, experts recommend leaving them open. Not only will those available balances go toward your credit usage limit but having an account for many years also adds to your credit score.
There are many other tips and tricks to improving your credit score, which can take many months or just one month depending on your particular situation. This article from Investopedia digs deep into if you should only pay minimums on credit cards, if you should apply for a new credit card and other tips on how to raise your score to a level that will have lenders clamoring for your business.