A good credit score gives you several advantages when you’re ready to buy a home, including access to lower-interest mortgage rates. 

However, a lower credit score may have negative implications when you’re considering whether to buy a home. Knowing and understanding your credit score can help you along the path to better credit. 

What is my credit score? 

Your credit score is a three-digit rating that tells a lender how responsible you are when you borrow money. High credit scores demonstrate that you pay your bills on time and you don’t borrow more money than you can pay back. 

However, low credit scores tell lenders that you sometimes miss payments, overextend your line of credit regularly, your account is young, or your spending habits are unpredictable. 

TransUnion, Equifax and Experian are the three major reporting bureaus that gather data on your spending habits and calculate a score for you based on your spending and bill-paying habits. A few factors that go into your credit score include your payment history, credit utilization, how much total credit you have, how old your account is and how often you apply for new credit lines.

What is a good credit score?

Even though a higher score is always better, a good place to start is to get your credit score into the “good” threshold or above. 850 is the highest possible credit score. The credit score ranges include:

• Exceptional: 800 – 850:  These borrowers have access to the best interest rates, most beneficial offers and can even secure special individualized perks and offers from lenders.
• Very Good: 740 – 799: These borrowers have a variety of options to choose from when it comes to products and pricing.
• Good: 670-739: According to data from Experian, borrowers in the “good” range have only an 8% chance of becoming “seriously delinquent” in the future.
• Fair: 580 – 699: “Fair” borrowers see higher interest rates and lower ranges of credit than borrowers with “good” or higher scores.
• Poor: 300 – 579: Lenders see borrowers with “poor” credit scores as very high risk. If you have poor credit, you may want to create a credit improvement plan immediately.

How To Improve Your Credit Score

If you have bad credit, don’t worry. Your credit is something that you control and ultimately improve. After you know and understand your credit score, you can start your credit improvement plan by using the methods listed below.

1) Check your credit report for errors 

Many Americans have errors on their credit report without even know it. According to a U.S. Federal Trade Commission (FTC) report, about one in every five consumers has some sort of “confirmed material error” on their credit report. 

Some of the most common errors include:

• A report that inaccurately lists a missed payment
• The inclusion of accounts that don’t belong to you
• A report that a closed account or a paid-off loan is still open

If you do notice something you think is an error, your credit bureau must investigate any dispute that you make and report their findings back to you. If the credit bureau finds that the error you reported is actually an error, they remove it and raise your score. 

2) Focus on regular payments

Your payment history is the biggest single factor that makes up your credit score because it makes up about 35% of your score’s calculation. Therefore, one of the quickest ways you can raise your score is to make minimum payments on all of your accounts every month. 

If you have cards open but you don’t use them, avoid the temptation to close them out. Closing credit lines lowers your available credit and increases your utilization percentage. Instead, charge a small item, like a cup of coffee, once a month and pay off your bill right away. 

3) Consider a debt consolidation loan

A debt consolidation loan or balance transfer takes all of your outstanding debts on different accounts and merges them into a single monthly payment. Debt consolidation loans help improve your credit utilization rates, your credit mix and help you avoid missed payments. This can be a great option if you have multiple lines of credit that you have trouble keeping up with. 

In conclusion, there isn’t anything that will repair your credit overnight. However, there are plenty of small steps you can take daily that’ll lead to an improved credit score over time.