4 Little Changes That'll Make a Big Difference with Your Credit Score

Posted by Chris on February 12, 2015

A good credit score is the key to successfully refinancing your mortgage. Here are four simple steps that you can take to improve your credit score, also known as your FICO score. Complete these small steps now and you might save hundreds or thousands of dollars on your future mortgage payments.


1. Focus on Your Debt-to-Credit Ratio

If you don't use all of your available credit, you send a positive message to prospective lenders. Your FICO score will get a boost if your debt-to-credit ratio is below 30 percent. Try to reduce the percent of available credit that you use as much as you can.

Why does this help you? Lenders believe that people who are fiscally responsible won't max out their credit. If you use only a small portion of the total credit available, you demonstrate that you don't need it just to get by.

Action: Pay down balances and maintain them at low levels.

2. Pay Off Small Balances

The number of cards with balances is a factor in calculating your FICO score. Therefore, one or more minor balances will often result in a lower credit score. Pay off these so-called nuisance balances as soon as you can. Going forward, focus on using just one or two credit cards for most purchases.

Action: Pay off small balances quickly and limit your credit card count to 1-2 cards. 

3. Quickly Comparison Shop

When you're shopping for a loan, it's important to do your comparisons within a short time frame. Some lenders use newer credit scoring methods that count all inquiries made within 45 days as just one inquiry, while others use a 14-day window. Also, any inquiries made during the 30 days prior to applying for a new mortgage won't hurt your credit report.

Action: Perform your loan rate comparisons in a timely manner. 

4. Make "Slow and Steady" Purchases and Payments

Prospective lenders typically don't want to see sudden changes in your personal financial habits. The classic advice is to avoid purchasing a car or other major item just prior to a mortgage refinance. It's also important to avoid sudden increases in your monthly credit card expenditures.

Action: Maintain steady and consistent financial behavior.
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Topics: Credit & Debt

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