How to Improve your FICO Scores Quickly

With mortgage interest rates still low, you may want to refinance or buy a new home before rates go higher again.  The question is will you qualify to refinance or get a new mortgage for a new home?

Since the recession, lenders have tightened loan qualification and they used credit scores to determine if you qualify for a loan and at what interest rate. 

Credit scores make a significant impact. For every 20-point credit score increase, according to Zillow, the average low APR declines 0.12 percent, a savings of $6,400 on a $300,000 home over 30 years. 

FICO scores are based on your credit history from 3 credit reporting bureau:  Experian, Trans Union and Equifax and each one calculates its own score.  The first thing you need to do is to review your credit report for errors and resolved them as quickly as possible by filing a dispute to the credit bureau that reported the error. 

Here are some do's and don'ts to improve your credit score:

• Don't close credit card accounts. FICO scores utilize a credit utilization ratio that turns against you because it appears that you might be overusing your available credit.
• Don't max out or consolidate credit cards. Credit card companies like it if you only use about 30% of your available credit on your card. You're better off having small balances on multiple cards than a large balance on one card.
• Don't apply for new revolving credit or transfer balances. If you're buying a new home, it's tempting to buy some new furniture, but don't open that account until after your loan closes. You don't want "inquiries" to be raised in the scoring algorithm.
• Don't change jobs right before you apply for a home loan, although job changes within the same field are considered more favorably in scoring.
• Do pay all bills on time and with at least the minimum payment due. Lenders like on time payment histories.
• Do pay down your debt, as lower income-to-debt ratios are attractive to lenders. Start by reducing credit card balances first, beginning with the balances that generate the highest interest rates. Revolving credit is considered riskier debt than installment loans such as student loans or car payments.
• Do shop lenders simultaneously. Credit score software takes into account several inquiries from mortgage lenders as normal, but if you space rate-shopping out over weeks or months, that could impact your credit score negatively.

Mortgage lenders are most interested in your ability to pay.  The most important factors are job and debt payment history.