How can I improve my credit score?
There is no shortcut to increase your credit score overnight. But, by paying down the major chunk of the debt you owe or paying down the entire debt amount at a single go, considerably improves your credit score.
I have been looking for a mortgage loan. I also pre-qualified for that loan. But when the actual time came, my application for the mortgage loan was rejected. The reason was that my credit score declined by 10 points since the pre-qualification. So my poor score came in the way of getting the approval for a mortgage loan. I also do have a student loan. At one time, I was 2 months late in making payment. Do you think that my failure in making timely payments has negatively affected my credit score? If I make the full payment on the student loan right now, do you think that my score will improve?
The question that you have raised is whether credit score improve in case you pay off your debts in full. The answer is yes. If you make your payments in full without any default, your creditors update your account as 'Paid-in-Full'. This helps in improving your score.
Credit scores are three-digit numbers that lenders use to gauge your creditworthiness. A FICO score of 740 is good enough to get best loan terms. If you have low score, it implies that you may not qualify for a loan at all or may qualify for one but at an exorbitantly higher rate of interest. Recently, Fannie Mae, the mortgage buying agency, raised the minimum FICO score requirement from 580 to 620.
Negative items remain on your credit report for a minimum period of 7-10 years. If you have made repayments in full, you may request your creditors to remove these negative items from your report. And, once the negative items are removed from your reports, your score improves. However, while trying to improve your score, you need to remember few things.
Your financial situation should improve
Unless and until, there are some distinct signs of improvements in your finances, your score can't improve. You should not be facing financial crisis and you should have sufficient money left to cover your expenses. Then only the chances of raising credit score increase.
Do not expect overnight results
There is no shortcut in raising your score. It may however appreciably improve if you pay off significant part or the total credit card debt or other loans that you owe. But, otherwise, credit repairing takes considerable amount of time.
Now, you have come to know the basics, so take right steps to increase your credit score so that you can take out a mortgage loan with suitable terms and conditions.
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ABOUT THE AUTHOR
Justin Scott is associated with the Creditmagic Community and making regular contributions as a member of the community. Not only that, he has also written articles for different financial websites.