By Suraj Byanjankar

Jan 8, 2013

When applying for a purchase loan or refinance, your credit score is of great importance. Credit scores tell lenders how well a person manages their existing credit, and are telltale signs of how reliable they are with paying off loans. Lenders also use credit scores to determine the interest rate they will charge a borrower. People with higher credit scores are typically offered more competitive rates than people with lower scores. If you happen to have blemishes in your credit history, there are a few ways to improve your credit score.

Check Your Credit Report

Before you get started, make sure to check your credit report to see where you currently stand. You should be checking your report once a year to make sure there aren’t any errors that could hurt your credit score. This service is free and you won’t be penalized for checking your own accounts. Make sure to get a report from each of the three major credit reporters—Equifax, Transunion, and Experian.

Report any errors that you find on the reports that could lower your score. This includes late payments that were made on time or amounts owed that are incorrect. Make sure that any negative items older than seven years (ten if you have claimed bankruptcy) have automatically fallen off your report.  You can dispute any credit report issues you have by contacting the credit bureau and reporting agency.

Understanding Your Credit Score

Your credit score is a number between 300 and 850. The higher the number, the better your credit is.  If your score is 760 or above, you have proved to have excellent credit management and will be eligible for the best interest rates. Scores below 760 could use a little work to get better rates. If your score is 620 or lower, you have some serious changes to make. Unless you have major blemishes such as a bankruptcy or foreclosure, there are a few easy ways to boost your credit score in as little as a few months.

If You Don’t Have Credit, Start Building it Now 

In order to apply for most major loans, you need to have some established form of credit so that creditors can see that you are responsible. If you are unable to obtain a credit card, a secured card is a great way to start establishing credit.[one_half]Secured credit cards typically require a few hundred dollars up front as collateral and have minimal credit limits, but the limits are usually raised after a few months of responsible use.

A gas card is another great way to establish credit. Gas cards enable people to establish credit by carrying a small balance every month—just make sure to pay off the balance on time each month.

Be careful not to open a lot of new accounts at once when you’ve had a short credit history. Having one line of revolving credit and one installment loan is a good start.

Having an installment loan is a great way to establish credit. Installment loans are different than revolving loans (i.e. credit cards) in that you take out a lump sum of money and pay it back over time. Examples of installment loans are student loans, car loans, mortgages, personal loans etc. A small personal loan with a competitive interest rate can be easily obtained from a bank, credit union, or other financial institution.

Make Payments on Time

One of the easiest ways to raise and maintain a good credit score is to make your payments on time. This also applies to bills such as energy, cable, and phone bills. If an account in your name is delinquent and goes to a collection agency, it can stay on your report for seven years even after it’s paid.

If you have trouble making payments on time, there are a few methods that can help. Set up alerts and calendar reminders that your bills are due. You can even arrange to have e-mail alerts sent from your debtors. Setting up automated payments is a foolproof way to make on-time payments but you will only be charged the minimum amount owed on credit cards.

Pay Down Existing Debt

This one is a no-brainer: if you have a lot of debt, stop using your credit cards and pay down the amount you owe. Lenders often prefer to see a large gap between the credit limit available and the balance carried forward. A good rule of thumb is to keep your balance at 30% of your credit limit or below, even if you pay off your balance each month. If you can, having a balance of 10% of your credit limit is ideal.

Set up a personal payment plan for yourself. If you have multiple cards, try to focus on paying down the accounts with the higher interest rates first while paying the minimum payments on accounts with lower rates. This will save you a good amount of money in interest paid. Avoid the temptation to transfer or consolidate balances to a new account. Having too many open lines of credit and unnecessary accounts can lower your score.

Good Credit Practices

If you have an established credit history, don’t close accounts that haven’t been used. Breaking out an old card for dinner or a tank of gas once a month will keep the account active and raise your score. Just make sure to pay off the balance each month.

When you’re shopping for a new loan, try to do so within a two-week period. Having your credit history pulled multiple times can decrease your score, but if it’s in a cluster it will not be treated unfavorably. To prepare for a major purchase, don’t open any new accounts eight months prior.


Raising your credit score can take a lot of time, patience, and discipline. However, if you follow these simple guidelines you will soon notice a positive change in your credit and financial future.

These blogs are for informational purposes only. Make sure you understand the features associated with the loan program you choose, and that it meets your unique financial needs. Subject to Debt-to-Income and Underwriting requirements. This is not a credit decision or a commitment to lend. Eligibility is subject to completion of an application and verification of home ownership, occupancy, title, income, employment, credit, home value, collateral, and underwriting requirements. Not all programs are available in all areas. Offers may vary and are subject to change at any time without notice. Should you have any questions about the information provided, please contact us.