Your credit score is always looked at when determining the outcome of your home improvement loan application. A good credit score will increase your chances of getting the loan, and vice versa.
Here are four tips to improve your credit score rating and increase your chances of getting approved for a home improvement loan.
Check Your Credit Report
A credit report from major credit bureaus such as Transunion and Equifax will detail your borrowing behavior. The bank will also request for this document directly from the credit bureaus when evaluating applications. They use it to gauge one’s ability to repay the loan on time.
Check if there is any incorrect information in the document and report it to the bureau to ensure that it is taken off your record. For example, check that all bank accounts listed on the report are yours and the amounts owed are correct. Also, check for negative data such as late payments that are more than seven years old. Some bureaus can drop such bad marks from the report thereby boosting your credibility.
Make Sure you Pay Bills on Time
The secret recipe to getting a high credit score and maintaining it is making sure you pay your bills on time. Missing the deadlines with just a few days can have a profound effect on your credit rating. The more you delay the payments, the more it hurts your credit score.
Even though it is not possible to wipe out information about late payments that you made in the recent past, you can outweigh them by making sure that you make payments on time every month moving forward. The bureaus will notice your improved payment trend or behavior and adjust your score accordingly. Note that old mistakes will eventually fade into the background and their impact on your credit score will diminish.
An automatic bill pay plan pays a bill as soon as it comes in, it comes in handy when you are trying to build credit. Most of today’s banks that have an online banking portal that usually offers this service.
Pay Down Debt
Apart from paying bills on time, another major factor that directly influences credit score is how much credit that you utilize. The portion or amount of available credit that you are currently using is referred your utilization rate. For example, if your card has a credit limit of $10,000 and your current balance on the card is $5,000 – your utilization rate is 50%.
Most financial experts, such as Get Hearth, recommend making sure that this rate is not higher than 30%. In the example above, you should strive to lower your balance on the card to $3,000. The more you pay off, the faster your score will be raised.
In addition, the amount owed on different accounts is also used to determine your credit score. Paying them off is an ingenious way of quickly boost your score and boost your financial stability. After dealing with the small balance, focus your efforts on paying off the credit cards. You should set aside a specific amount of money each month to repay them, or better yet, have the money ready to pay off those big purchases before you make them on your credit card. Talk about a guaranteed credit boost.
Due to the harsh and unpredictable economy, some people cannot afford to maintain a monthly fixed debt repayment plan. No need to worry, you can try debt snowflaking – anytime you save a small amount such as $100 on gas in fuel rewards, add it to your monthly debt payment.
Don’t Closing Old Accounts
To most people, having old debts on their credit report is a lousy omen and should be done away with quickly. As a result, they rush to close accounts as soon as they complete repaying off the credit card debt. They also write or call the credit bureau to request that information about the debt to be deleted from the records.
This is a counterproductive move if you want to increase your chances of getting a home improvement loan and improving your credit score. Any debt that you successfully repay on time will affect your score positively. More importantly, the longer these good debts stay on record, the better. Keep a bit in the accounts, but don’t close them, let them built your credit.
Financial experts will be the first to tell you keeping an old credit card is a good idea, even if you don’t use it. This is based on the fact that it will increase the total amount of credit available to you. In addition, all the unused credit will ensure that your utilization rate does not exceed the recommended 30% threshold. Canceling the card will shorten your credit history thereby negatively affecting your score.
Finally, before applying for a home improvement loan, it is important to consult a credit expert so you can understand your available options. A financial expert can also help you come up with a repayment plan that resonates with your current monthly income.