When you're applying for a mortgage or a vehicle loan a difference of even a few points in your credit score can make a big difference in the interest rate that you're able to get. If you'd like to position yourself for a lower rate, here are some things that you can do to raise your credit score fairly quickly.
Check your credit report for errors.
Banks and other creditors do make mistakes. They might report to a credit bureau, that you have a late, unpaid balance on an account with them when you’ve actually paid that account off. Such misinformation can subtract several points off your credit score.
It happens more often than you think. A study by the Federal Trade Commission found that five percent of consumers—one person in twenty--had errors on their credit report that could impact their credit score and force them to pay a higher rate of interest for credits and loans.
Make time to do a careful examination of your credit reports so this doesn’t happen to you.
Pay down your credit card balances.
A debt-to-income ratio (DTI) that’s above 30 percent can have a negative effect on your credit score. To figure out your DTI, take the amount of debt you owe each month (mortgage, vehicle and student loans, alimony or child support payments), divide it by your total monthly income and then multiply the result by 100.
If your DTI is too high, you’ll either have to find another job (or take a part-time job) to raise your income or pay off some of your debt. Reducing your credit card balances is a good place to start.
Take out a small personal loan.
It may seem counter-intuitive to borrow money when you’re trying to boost your credit score but the fact is that the credit bureaus like to see a mix of credit types—auto loans, credit cards and personal loans—when they’re calculating your score. So even if you don’t need the money you should apply for a short (three-to-six month) loan from your bank.
If you don’t want to get more deeply in debt, just put the money aside in a bank account. Whether you save the money from the loan or spend it, make sure that you repay the loan promptly. The last thing you want to do is add late payments to your credit report.
While there’s no way to raise your credit score within a week or two, it’s not impossible to increase it over the course of a few months. Just keep doing everything you can to prove to the credit reporting bureaus—and to potential creditors—that you’re a good risk.