Tips for improving your credit score

Last week, we talked about preparing to buy a home by ordering and reviewing your credit reports and scores.  Today, we’ll discuss improving specific areas of your creditworthiness, to put you in the best position possible as you apply for a mortgage.

Establish a pattern of paying on time. On your credit reports, each account includes a record of your payment history. Each month will be marked as “Paid as agreed,” or late, along with the length of time in which the payment was late, in 30-day increments.

When lenders look at your credit history, they want to see that you consistently pay on time. When considering a mortgage application, with a term that can last as long as thirty years, lenders look to your past history to predict the future pattern of your payments.

If you frequently pay late, and your late payments are recent, this can indicate credit risk to a financial institution. To lessen the potential costs that come with that risk, a financial institution may charge higher interest rates than they would offer to a lower-risk applicant.

If you have this pattern, first recognize that this negative information stays on your credit report for a finite period of time: in most cases, seven years.  With time, you can replace negative marks with positive ones. Next, your most recent behavior will be considered more heavily when your application is evaluated.  If you take the time to establish a good pattern now, that can lessen the effect of negative information.

To change this pattern, find the source of the problem. If you’re simply forgetting that certain bills are due, then email reminders, calendars, and automatic payment plans can help a great deal. Experiment with different tools to find what works for you.

If you haven’t been able to pay bills on time because you have been experiencing shortfalls, this requires a deeper fix. The first step is to carve spending down to your most basic needs. Make a list of your essential expenses, and total them. If this amount is less than your monthly income, it’s a question of sticking to those monthly expenses, as you would stick to a list at the grocery store. It can be difficult, but with time, you will adapt to the new spending level, and establish a healthy pattern of paying bills on time. Another option is to look for ways to increase you income, so that you can comfortably pay your bills on time.

Bring down your credit balances. As we talked about in an earlier column, the amount of credit you use will impact your creditworthiness. Lowering your credit balances will help improve your score.

Limit your applications for new credit. If lenders see that you are opening several new credit accounts in a short period of time, they can view this as a credit risk. It’s best to limit new credit applications only to what you need, and to refrain from new credit applications in the immediate period of time before you search for a mortgage.

Hang on to your credit cards. When you close your accounts, this lowers the total amount credit available to you. Rather than closing them to avoid credit card use, keep them for emergencies and store them away.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 19 years experience in retail banking and with financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at


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