How to Raise Your Mortgage FICO Score Fast

How to Raise Your Mortgage FICO Score Fast

Higher FICO scores equal lower interest rates

A good credit score is crucial for both your personal finances and your ability to become a homeowner.

Yet many home buyers begin their journey without fully understanding their credit score and how it impacts their mortgage eligibility.

Raising your credit score fast can be done, and these tips may help you afford your dream home sooner than you thought possible.

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Will Paying the Minimum on My Cards Improve My Credit Score?

No. This is a widespread myth. You need to pay at least the minimum payment due on your credit card every month so that your cards have an on-time payment history. You do not have to pay a single cent in interest to improve your credit score. In fact, paying your credit card balances in full every month will have the greatest positive impact on your score, because it will improve your credit utilization percentage.

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18. Work With a Nonprofit Credit Counseling Agency

If you feel unsure about how to set up a budget or start attacking debt, a certified credit counselor at a nonprofit agency can provide a free initial consultation to discuss first steps. Credit counselors also offer debt management plans, which can help some borrowers pay down overwhelming debt.

What determines your credit score?

Five factors make up your FICO score calculation:

  • Payment history: 35% of your score
  • Credit utilization ratio: 30% of your score
  • Average age of credit: 15% (a longer credit history will raise your score)
  • Credit mix: 10% (a mix of installment accounts like car loans are better than revolving credit accounts like credit cards)
  • New credit: 10% (opening too many new accounts and having too many credit inquiries over a short period can lower your score)

An improvement in any of these categories can help boost your credit score. But to see the biggest impact, make sure you pay all your credit accounts on time and keep your credit balances below 30% of their total limit.

What can you do about a credit score discrepancy?

Minor credit score discrepancies aren’t worth bothering with. Others are.

For example, if you have paid off a big chunk of debt, you want that positive information included on all three bureaus’ reports. If it isn’t, dispute the inaccuracy with the credit bureau that’s not showing it.

If you have a mortgage pending, you may even be able to speed up the dispute process by having your mortgage broker or lender submit a “rapid rescore” request that can update your report in just a few days.

6. Keep Old Accounts Open and Deal with Delinquencies

The age-of-credit portion of your credit score looks at how long you’ve had your credit accounts. The older your average credit age, the more favorably you appear to lenders.

If you have old credit accounts that you’re not using, don’t close them. Though the credit history for those accounts would remain on your credit report, closing credit cards while you have a balance on other cards would lower your available credit and increase your credit utilization ratio. That could knock a few points off your score.

And if you have delinquent accounts, charge-offs, or collection accounts, take action to resolve them. For example, if you have an account with multiple late or missed payments, get caught up on what is past due, then work out a plan for making future payments on time. That won’t erase the late payments but can improve your payment history going forward.

If you have charge-offs or collection accounts, decide whether it makes sense to either pay off those accounts in full or offer the creditor a settlement. Newer FICO and VantageScore credit-scoring models assign less negative impact to paid collection accounts. Paying off collections or charge-offs might offer a modest score boost. Remember, negative account information can remain on your credit history for up to seven years—and bankruptcies for 10 years.

The truth about raising your credit scores fast

While a lucky few may be in a situation where they can raise their credit scores quickly, the bottom line for most of us is that building credit takes time and discipline, especially if you’re trying to rebuild bad credit. That’s because your credit scores are complex and made up of several interconnected factors (more on that below).

So trust us: While some credit repair agencies may promise to raise your credit scores fast, there’s no secret that will help boost your credit scores quickly.

But if you start developing healthy habits now, you can build credit over time all by yourself.

5 factors that affect your credit scores

As we mentioned above, there are several factors that go into determining your credit scores.

  1. Payment history makes up the biggest chunk of your credit scores. That’s why it’s so important to make on-time payments each month if at all possible. Late payments can haunt your credit history for up to seven years.
  2. Credit usage, or credit utilization, is another important factor. This measures how much of your available credit you tap into at any given time. Experts recommend you keep this to less than 30%.
  3. The length of your credit history has some impact on your credit, though not much. This factors in the ages of your oldest and newest credit card accounts, as well as the average age of all your accounts. The older your credit, the better, because it shows lenders you have more experience managing credit.
  4. Your credit mix has a small impact on your credit. This looks at the types of credit you borrow. Lenders want to see that you can balance revolving accounts like credit cards with installment accounts like mortgages, student loans, auto loans and personal loans.
  5. Your recent credit also has a small impact on your credit. This tracks the applications you file for things like new credit cards and personal loans with hard inquiries. The fewer, the better.

What is a credit score discrepancy?

A credit score discrepancy is a difference in your credit score from one credit bureau to another. Most of the time, scoring differences are not unusual because there are differences in the information on file at the credit bureaus. On top of that, these credit reporting agencies use different scoring models to produce credit scores.

FICO is a long-established scoring model used by 90% of the top lenders in the United States.  Since FICO generates three scores — one for each agency — you likely have three different FICO scores.

VantageScore is another widely-used scoring model created in a joint effort of the three major credit bureaus. As such, you only have the VantageScore number, which will most likely be different from your FICO credit score.

3. Consolidate credit card debt

Paying down balances is the simplest way to lower your credit utilization. There are a couple other options, though. You could consolidate credit card debt with either of the following financial products:

  • Balance transfer credit cards: These cards offer a 0% intro APR on balances you transfer over from other credit cards. The benefits of opening a balance transfer card are two-fold. You’ll have time to pay down debt with no interest charges, and that new card’s credit limit will add to your total credit. More total credit means your credit utilization will decrease.
  • Debt consolidation loans: These are loans you can use to pay off your credit cards. Your loan will likely have a lower interest rate than your credit cards, and you’ll be able to pay it off in fixed monthly payments. This also lowers your credit utilization, because installment loans don’t count toward your credit utilization ratio.

Whichever method you choose, your credit utilization will decrease, which should increase your credit score.

Keep in mind that you still need to work hard on paying off debt even after a balance transfer or loan. Don’t make the all-too-common mistake of relaxing and spending more just because you’ve gotten a lower interest rate for your debt.

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2. Pay Down Debt Strategically

OK, let’s build on what you just learned about utilization ratios.

In the above example, you have balances on more than one card. Note that Card A has a 42% ratio, which is high, and Card B has a wonderfully low 10% ratio.

Since the FICO score also looks at each card’s ratio, you can bump up your score by paying down the card with the higher balance. In the example above, pay down the balance on Card A to about $1,500 and your new ratio for Card A is 25% (1,500/6,000 = .25). Much better!

Bottom Line

Experian Boost can have a positive impact on your score, and may even propel you from one scoring category to another, helping you qualify for better lending terms on loans and credit. But it’s only a small piece in the bigger picture of improving your credit score. 

Consider Experian Boost or other new scoring methods as a tool, but continue to practice the good credit habits that will lead to lasting excellent credit, too. Make timely payments in full on all your accounts, keep your utilization ratio low, and be smart about the lending products you choose to pursue.

3. Check your credit report for errors

One way to quickly increase your credit score is to review your credit report for any errors that could be negatively impacting you. Your score may increase if you are able to dispute them and have them removed. 

About 25% of Americans have an error on their credit reports, so it's important to take the time to review. Some common errors to look out for include fraudulent or duplicated accounts, as well as misreported payments.

"Most of the clients we meet with have not reviewed their report within the past year, and are often surprised by what we find to discuss with them," says Thomas Nitzsche, a financial educator at MMI. 

You can get a free credit report from the three major credit bureaus (Experian, Equifax and TransUnion) on a weekly basis by going to AnnualCreditReport.com now through April 2021.

4. Raise Your Credit Limits

If you tend to have problems with overspending, don’t try this.

The goal is to raise your credit limit on one or more cards so that your utilization ratio goes down. But again, this works in your favor only if you don’t use the newly available credit.

I don’t recommend trying this if you have missed payments with the issuer or have a downward-trending score. The issuer could see your request for a credit limit increase as a sign that you’re about to have a financial crisis and need the extra credit. I’ve actually seen this result in a decrease in credit limits. So be sure your situation looks stable before you ask for an increase.

That said, as long as you’ve been a great customer and your score is reasonably healthy, this is a good strategy to try.

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All you have to do is call your credit card company and ask for an increase to your credit limit. Have an amount in mind before you call. Make that amount a little higher than what you want in case they feel the need to negotiate.

Remember the example in #1? Card A has a $6,000 limit and you have a $2,500 balance on it. That’s a 42% utilization ratio (2,500/6,000 = .416, or 42%).

If your limit goes up to $8,500, then your new ratio is a more pleasing 29% (2,500/8,500 = .294, or 29%). The higher the limit, the lower your ratio will be and this helps your score.

How to check your credit report

You can get a free copy of your report at annualcreditreport.com.

Under normal circumstances, you would be able to get one free report from each of the three major credit reporting bureaus (Experian, TransUnion, and Equifax) per year. However, in response to COVID-19 you can access a free weekly report from any of the bureaus through December 31, 2022.

Check your credit report for errors, which could be dragging your score down. If you find mistakes, you can get items removed from your credit report by disputing the information directly with the credit bureau. They are obligated to investigate any dispute and resolve it within a reasonable amount of time. Keep in mind, however, that only incorrect information can be removed from your report.

According to Richardson, each credit report will have the information you need to improve your score. “There are four or five bulleted statements about your credit profile that can help you make a road map of what to do if you’re really in a position where you need to improve your score,” he says.

You may also find a numerical or text code in your report, but no additional information as to what it represents. These are factor codes and represent items that may be dragging your score down. VantageScore has a free website, where you can enter the code from any credit report and get an explanation of what it stands for and advice on how to resolve the issue.

If you’re unsure if there are mistakes on your report or have trouble getting issues resolved on your own, you can look for expert help. Credit repair companies not only know how to identify and correct erroneous information but can also help mitigate the impact of legitimate negative items on your report.

22. Have Patience

Improving credit isn’t an immediate process. An excellent credit score is most often the result of years of conscientious financial behavior. While some strategies will let you see small improvements quickly, joining the ranks of those with the highest credit scores will take time. If 2021 brought with it new or continued financial strain after a destabilizing 2020, just commit to doing your best in 2022—and try to avoid moves that could jeopardize your credit score.

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