If you want to refinance, you should maximize your credit score in order to get the best terms for your new loan. Whether you want to lower your interest rate or tap into your home’s equity, lenders are looking for great credit in order for you to refinance.
While you can’t increase your credit score overnight, there are ways that you can get your credit score up before you refinance. Keep reading for the top tips.
Bring Any Past Due Amounts Current
Your first step should be to make sure all of your debts are up-to-date. If you have any 30-day or longer late payments, bring them current now. This will have a direct and quick effect on your credit score. Late payments damage your credit score quite a bit and eliminating them can have a positive effect on your score.
Don’t Open New Accounts
As tempting as it may be when you receive new credit offers, don’t take them. During the six months leading up to your refinance, avoid having any new inquiries on your credit report. This will bring your credit score down and make lenders wary about giving you a loan. They may be suspicious that you have other debts out there that aren’t reporting on your credit report yet.
Don’t Overextend Your Credit
A large part of your credit score is your credit utilization rate. This is the amount of credit you’ve used compared to the credit line. If you have more than 30% of your credit line outstanding at once, it can greatly lower your credit score.
If you have already charged up your credit cards, work on paying the balances down as much as you can. Again, you want everything below 30% of your credit line. It’s ideal if you can pay them off in full, but if you can’t, at least focus on getting the balances as low as possible.
If you do have large balances and you can’t get them paid down, try asking your credit card company to increase your credit limit. This will decrease your credit utilization rate naturally, making it easier to qualify for the refinance.
Keep Your Credit Active
If you don’t use your credit, it can negatively affect your credit score. Let’s say you have five credit cards that you’ve had for many years, but you don’t use them. They become inactive and don’t help your credit score.
The trick is to use them at least a few times every six months, but don’t keep a balance if it’s not necessary. Keeping a balance isn’t the way to bring your credit score higher. Instead, it’s the act of using the credit and showing that you can pay it off – it’s called financial responsibility and both credit bureaus and lenders want to see it.
Don’t Close Old Accounts
If you have old accounts that you don’t use, don’t close them. While it can be tempting, it will damage your credit score. A part of your credit score is your credit’s age. The older your credit is the better your credit score will become. If you close old accounts, you automatically make the credit age younger, which could mean a drop in your credit score.
Look for Errors on Your Credit Report
Finally, you should pull a copy of your free credit reports. You can get them at www.annualcreditreport.com. Once you have the credit reports from all three bureaus, go over them carefully. Look at each account to see if they belong to you. Also, pay close attention to the details of each account. Is the payment history correct? Is the date you opened the account correct? What about the credit line and balance – are they correct?
If you notice any information that is incorrect, get in touch with the credit bureaus right away. You must put the request in writing and provide as much detail and evidence as possible. The credit bureau has 30 days to validate the debt with the creditor. If they can’t validate it, they must remove it from your credit report. If the creditor disputes the issue, though, the process could go on a little longer.
The earlier that you can start these steps the better off you’ll be in the end. Your credit score will take time to increase unless it’s pretty low to start. If that’s the case, even just a few changes will bring the score up dramatically. If you are just trying to maximize your already good score, though, give it time to increase as it could take several small changes before your score starts changing.