A person having bad credits has very less chances of securing a mortgage. However, even if they qualify for a loan, it might be offered to them at higher rate of interest. Therefore for these reasons, it becomes important to make some efforts and improve the credit score. However the most important question is how to increase the credit score? There are some important techniques which can be employed to increase the credit score.
Having knowledge of the requirements
A person planning to achieve a good credit score should have a clear goal in his mind and must remain motivated. In order to qualify for the conventional loan, it is important to have a credit score of about 640. However applicants having a credit score of at least 720 have better chances of getting an approval. But if you want to secure the best deal, aim to build a score of 780. With a clear goal in mind, it becomes easier to achieve it.
Debt re-payment would boost the credit score in addition to lowering the debt to income ratio. It should be remembered that to get an approval for the mortgage, the DTI ratio should remain lower than 43%. So, faster the debts are repaid, easier it becomes to increase the credit score. In addition, if the credit score is low to a greater extend, spending should be restricted.
Wise use of credit cards
Credit card comes with a limit and it should be remembered to spend only one third of the given limit. The credit card debt should be repaid in full every month and it is always better if instead of a single card, all the cards are used. The credit card which is not used should be terminated and no new credit card should be issued to increase the credit score.
Outstanding balance on different loans should not be transferred into one account neither should this be done with the credit card balance. Consolidating debts can further damage the credit score instead of repairing it.
Avoid taking new loans
Taking new loans would not help in increasing the score rather it would greatly affect the debt to income ratio. If you are planning to apply for a mortgage, remember to stay away from taking a new loan, a month prior to the application. During this period, a person should not even apply for new credit cards.
A written request can also be given to the lenders to erase smaller issues related to late payments or any other similar types from the credit report. If timely payments have been given in the previous years, this application might be approved by the lenders.
Review the credit report
Go through the credit report and identify any type of error which might be present. Sometimes removal of such errors can help in increasing the credit score.
Therefore by paying all the payments on time, you can earn a higher score and can further secure the mortgage loan at better terms and conditions. So act responsible and increase your credit score.
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