Thank you for your question about your desire to improve your credit score.
The good news is you do not need to spend any extra money to raise your credit score. In other words, you can raise your credit score for free. The bad news is that you need to spend the money you have wisely. You can make improving your 546 credit score as easy or as difficult as you want it to be -- it is entirely up to you and your behavior. Here is the key: Make all of your payments on time and your credit score will go through the roof.
Even being late once on a payment for a credit card or mortgage will ding your FICO score. Making payments late consistently will harm your FICO score and bring it down into the 500s. Bills.com has answered variations on your question for a reader with a FICO score of 580 and a reader with a FICO score of 460. The scores vary but the steps to raise a credit score for free are the same.
Bills.com has written numerous articles on how debt affects your credit score and how to increase your score. In addition to paying your existing tradelines on time, here are four steps to improve a credit rating:
- Pay off all debts and keep revolving lines below 25% utilization. Do not "max out" any loans or cards.
- Diversify you credit portfolio. If, for example, you have only a Visa, MasterCard, or Discover card, get a department store credit card or card from a gasoline retailer. Make your payments every month. Leave a small balance every once in a while to show that you are able to handle debt on more than one account.
- Keep your oldest credit account active. Remember point number three "Length of positive credit history" discussed above.
- Pull your credit report and contest any inaccurate information so that it can be corrected by the credit bureaus. Go to the Bills.com debt self-help center for sample dispute letters. The credit bureaus must follow the rules set forth by Congress in the Fair Credit Reporting Act (FCRA).
If you would like to learn more about credit reports, credit scoring, and what it means to you, I encourage you to explore the wealth of material offered by the Bills.com credit information page.
Refinancing with low FICO score
You mentioned wanting to refinance your mortgage. Bills.com wrote an article about refinancing with a 520 FICO score.
The following three factors affect whether you will qualify for or refinance a mortgage:
1. Loan to value: This is calculation looking at how much you want to borrow, relative to the value of the home. It is directly impacted by the amount of money that you can put down on your new home. The larger the down payment, relative to the value of the home, the less risk the lender has to take in extending to you a loan.
2. Debt to Income: This ratio looks at your monthly debt obligations (payments of interest and principal) as a percentage of your monthly income. If you have a significant amount of debt, your debt service burden may be too high for a lender to comfortably give you a loan. You need to either increase your income, or cut your debts.
3. Credit Rating: Your loan, including terms like interest rate and points, will depend on your credit worthiness. One measure of credit quality is a credit score (sometimes a specific FICO score). Your credit rating is calculated based on several variables, including: your payment history (do you have any late payments, charge-offs, and so on), the amount and type of debt that you owe, if you have maxed out any of your trade lines, and then several other secondary factors like the length of your credit history and how many recent inquiries have been made to look at your credit history. If you have a good credit score, you will get a better loan.
The best way to improve your credit score is to make your payments on time. Since you were late on your home equity loan, that will negatively impact your credit score and potentially affect your chances of refinancing your mortgage. Talk to a mortgage broker or your current loan servicer and determine what your options are. Keep in mind that an FHA mortgage is often an ideal choice for someone whose credit is not good.
I hope this information helps you Find. Learn & Save.