8 tips to improve your credit score

By Michele Lerner
Mortgage Credit Problems Columnist

If you've had a loan or credit card application denied, your credit report will let you see why you were refused credit. Consumers can request a free copy of their credit report at AnnualCreditReport.com.

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But consumers with debt problems or bad credit may already know they need to do some credit repair work. If you aren't sure whether you qualify for a conventional home loan or a bad credit home loan, complete the form on this page and see.

If your credit score is lower than 620, you are likely to need to work with bad credit lenders in order to get a mortgage -- and you will definitely pay a higher interest rate than people with better credit. So take a few steps immediately to improve your credit score before applying for a new home loan. Credit scoring company FICO recommends tips that include the following.

DIY credit repair

  1. Examine the negative factors on your credit report. Your credit report will tell you where you need to improve, such as reducing the amount of credit used in relation to available credit or correcting inaccuracies.
  2. Pay your bills on time. This one's straightforward enough. Particularly if your late payments result from lack of organization rather than an actual inability to pay your bills, it may also be one of the easiest to fix. Set up auto billpay or schedule reminders to get those payments in on time.
  3. Pay off any missed payments. As much as possible, get current and stay current on all your bills coming from open accounts.
  4. Keep your balances low. Pay down your credit card balances as fast as you can, to avoid interest from getting out of hand and to lower your credit utilization -- which is the percentage of your available credit that you're using.
  5. Pay off debt. Moving your money from a high-interest credit card to a low- or zero-interest card will help you pay less interest and slow the growth of your balances. But ultimately, to improve your credit score, start paying down your balances.
  6. Re-establish your credit after you have resolved your debt problems. If you have paid off past debts and closed out the accounts, you may hate the thought of new debt. However, you can improve your score if you open new accounts and establish a history of paying them on time.
  7. Don't close unused accounts. Closing accounts can lower your score because you will have less credit available. Just leave them open and empty to prove you are not tempted to use every dime of available credit.

Credit repair takes time, but every step you take brings you closer to qualifying for a new mortgage loan and to improving your finances.

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