If you've recently tried to refinance your mortgage, or get a new one, or applied for a consumer loan, you may have found yourself being denied a loan based on your credit rating.
If you've been told that your credit score is too low, there is something you can do about it, and quickly.
Here are three fast ways to improve your credit score:
- Lower your credit-utilization ratio. Almost one-third of your credit score is based on your credit-utilization ratio. That's the total of your credit-card balances divided by the total of your credit-card limits. Pay down balances and use 20% or less of your available credit, and ask your creditors to increase your credit limit. Increasing your credit limit will help you keep your use of credit to 20% or less of your available credit. Just beware of the temptation to spend more just because you can. And keep accounts open -- closing unused accounts could hurt your score by instantly raising your utilization ratio.
- Correct any mistakes in your credit report. If you've been denied a loan, ask your lender for copies of your reports. You also can get one free credit report from each of the three reporting bureaus -- Equifax, Experian and Transunion -- annually, from annualcreditreport.com. On the same website, you can purchase a credit score from any of the three agencies, and report any mistakes. Correcting mistakes can improve your score quickly, especially if you do it online. The credit bureaus must process disputes within 30 days, and they usually settle them even faster than that.
- Pay your bills on time. This hasn't changed. Missed payments remain in your credit history, counting as a negative, for seven years. But the new Freddie Mac /Fannie Mae guidelines are tighter than ever: Missing payments on credit cards, auto loans, and other debts in which the balances do not have to be paid off every month -- for example a student loan -- will add 5% of your outstanding balance to the debt part of the debt-to-income calculation. In other words, if the outstanding balance on your student loan is $20,000 and you miss a payment, $1,000 gets added to the debt side of your debt-to-income calculation when applying for a mortgage backed by Freddie/Fannie (the government entities that back most mortgages written).