Preparing to Buy a House? Raise your Credit Score

Posted by Kris Lindahl on Tuesday, May 12th, 2015 at 9:17am.

If you won’t have cash to pay for that Minneapolis home you’re looking for, you’ll need a mortgage and, for that, you’ll need good credit. Well, you’ll need good credit if you want the best rates and terms on your loan and the lowest monthly payments possible.

The first task on a lender’s to-do list when faced with a loan application is to pull the applicant’s credit reports and determine his or her credit score. This score is produced by Fair Isaac Corporation, and is known as your FICO® score. This score not only reflects your credit risk but will be used in the determination of the interest rate you’ll be offered.

 What’s a FICO Score?

 FICO® credit scores range from 300 to 850, and they are calculated from the data in your credit reports. FICO® uses five categories in the calculation:

  •  Payment history – 35 percent of your credit score is based on payment history.
  •  Account balances – this category accounts for 30 percent of your credit score.
  •  Length of credit history – this category is used to determine 15 percent of your credit score.
  •  New credit – 10 percent of your credit score depends on new credit obtained.
  •  Types of credit – the types of credit you use accounts for the final 10 percent of your FICO® score.

 Now, this formula is not set in stone. People who have short credit histories – young people for instance – are weighted differently than those with long credit histories.

You are entitled to a free copy of your credit report from each of the three major credit reporting agencies once a year. Make sure you order the reports at, the only site authorized by the federal government.

Clean up your Reports

According to a CBS News report, about four out of every five credit reports – almost 80 percent – contain errors. The study also found that 25 percent of these errors are serious enough to decrease the consumer’s chances of obtaining credit.

Common errors found in credit reports include:

  • Other people’s accounts listed as the consumer’s.
  • Incorrect personal information, such as birth date, social security number and the spelling of the consumer’s name.
  • Closed accounts listed as open with outstanding debt.
  • Accounts in good standing aren’t listed in the report.

So the next step in raising your credit score is to look for mistakes in your credit reports. If you find some, file a dispute with the credit reporting agency (instructions on how to do this are listed on each report). The credit reporting agencies, by law, must investigate your dispute and correct inaccurate information within 30 days. Removing derogatory accounts that aren't even yours will go a long way in raising your score.

Raise Your FICO Score

Thankfully, your credit score isn’t etched in stone but rises and falls according to how you use credit. To raise your FICO® score, then, means cleaning up the rest your credit report.

Start by paying off accounts that you’ve fallen behind on. Here are a few other ways to help clean up your credit history:

  • Pay down other debts, starting with the one with the highest interest rate.
  • Pay down credit card balances that are at the credit maximum and keep the balances low.
  • Don’t close old credit accounts – they’re good for your score.
  • If you don’t have a credit card, apply for one, use the credit sparingly and pay the balance every month.

Although these tasks may seem time consuming, if they raise your credit score a few points, it will be worth it when you go to apply for a mortgage to buy a home in Minneapolis. 




Image: CCO Public Domain

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