Looking For A Way To Increase Your Credit Score QUICKLY? Try This
Mortgage Banker
Richard Blair
Published on March 18, 2021

Looking For A Way To Increase Your Credit Score QUICKLY? Try This

Want to prequalify for a home mortgage, but need a way to increase your credit score QUICKLY?  Before you are able to get pre-qualified, or even pre-approved, for a home mortgage you will want to make sure that your debt and income ratios are in line.

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Did you know that 70% of your credit score is made up of your payment history and credit utilization ratios?  The credit utilization ratio is how much you currently owe on the credit card divided by your credit limit. Simply put-total credit used to total credit available. This refers to revolving debt like credit cards and lines of credit, not installment loans like your mortgage or a car loan. Credit utilization alone is very influential because it can impact 30% of your score according to Experian. If you are thinking about buying a home and qualifying for a mortgage, then start working on your credit utilization at least 90 days before speaking with your mortgage loan originator.

A great strategy is to pay down your credit card balances to between 3 to 5% of the limit. So, if you have a credit limit of $1,000 on your credit card, pay the balance down to $50, or less. This should provide you a great pop in scores that you will see within 30 days.

What if I don’t have enough cash to pay down all of my credit cards? In this situation take the OLDEST CARD and start by paying that balance down to between 3 and 5%. Then try to pay the remaining credit card balances to 30%, or less, of the credit limit.

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Always keep this in mind when pre-qualifying for your home mortgage: “The older the credit card, the lower the balance, the better the credit score.”

If you are still short on available funds to accomplish either strategy, then a possible work around is to contact the credit card company and ask to increase your credit limit. The reason for increasing the credit limit is to create a bigger gap between your balance owed and your credit limit. So if you owe $1,000 on a credit card with a limit of $2,000, your use of that card is at 50%. An increase of the credit limit to $3,000 will reduce your credit usage to 30% without spending any additional money.

When will You See Changes In Your Credit Score?

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Even after making some changes to your credit utilization the credit score may not change overnight. The credit score is affected by the timing when the credit card company updates your balance information with the credit reporting agencies, like Equifax, TransUnion and Experian. As a rule of thumb, the credit card companies update information every 30 days at the end of your billing cycle. That is why changes in your score can take several weeks in some instances. So be aware of this timing before you speak with the bank, mortgage broker or mortgage banker about pre-qualifying for a mortgage.

Will Closing a Credit Card Affect Your Credit Utilization Rate?

The decision to close existing credit cards is very tricky. Sometimes it is a double-edged sword when you are deciding whether to close an account. If it is a card with little or no balance, then closing the card will not really impact credit utilization. However, you may hurt your credit score depending on the age of the card. Closing a card that you have had for a long time negatively impacts the length of your credit history and can negatively impact your credit score. Also, it can actually increase your overall credit utilization if you close a zero-or near zero-balance card.

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An excellent credit score will make it easier to qualify for your home mortgage, provide you better rates and terms, and possibly open more lending options.

 

 

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