How to maximize your Credit Score
Intro: Everyone knows that your credit score plays a major contributing factor to your qualification for a mortgage. As long as you pay off your credit card balance on time, it'll continue to rise. This is definitely the best thing you can do to maintain a good credit score, but here are a few tips to help increase it even further.
1. Do not maximize your credit card balance
Many people think that as long as you pay your credit card on time, there shouldn't be a problem utilizing your limit. But in fact, even if you have a large credit limit, you should keep that balance low.
Ex: Most people favour one credit card over the other. Among the hundred of options banks offer, consumers can choose from cash back, travel rewards, etc. Now let's say you have two credit cards with a limit of $5,000 each ($10,000 Total). Each month, you spend a total of $4,500. How would you disperse the expenses? Most would utilize one card over the other and put the balance of $4,500 on to their 'favourite card' because it probably has better rewards, and its easier to track monthly expenses. However, this is hurting the users credit score even though the monthly balance is paid out on time.
It may be better to divide the cost in half among the two cards.
Therefore, it goes from a 90% card utilization, to two cards being 45% utilized
2. Limit your credit pulls sparingly
We've all heard of 'hard' and 'soft' pulls when it comes to credit cards, mortgages, car loans etc. Many say 'soft' pulls aren't a big deal. In most cases, it's not. Although, do limit the number of inquires you do each year since they tend to add up relatively quickly.
- Use a mortgage broker when applying for a mortgage. A mortgage broker only pulls your credit score once, and can apply to multiple banks at once. You'll be saving your credit score and time, since only one application will be needed. Every time you go to a bank, they will pull your credit score. Imagine you went to Bank A and got your mortgage declined. You decide to go to Bank B to get a mortgage instead. Bank B will not be able to use the copy pulled by Bank A.
- Limit the times you request for a credit card
- Do not pull your credit score as a 'soft inquiry' too often
3. Dispute any Inaccuracies
There have been multiple times where I've dealt with clients who had numerous inaccuracies in their credit score. If your credit score is lower than you expect. Inquire, and get it fixed. Here are a few things to look out for:
- Incorrect late payments
- Something leased that was returned, but a company has put it labeled as "collection"
- You have more than one personal account with credit bureau (Possible with people with challenging/hard names)