16 Aug Can I raise my credit score for a refinance?

Q. I’m going to refinance my mortgage by the end of the year and I want to improve my credit score, which is 742 according to Credit Karma. What’s the fastest way to boost the score?
— Homeowner

A. Before we discuss strategies to raise your credit score, let’s review how a credit score is derived.

Credit scores are based on payment history – loans, credit cards debt, utility bills – how much revolving credit you have, how long accounts have been open, the types of accounts you have and how often you apply for credit, said Darren Zagarola, a certified financial planner and certified public accountant with EKS Associates in Princeton.

He said the first thing you should do when trying to improve your credit score, whether you have a time restriction or not, is to review your credit history and correct any inaccuracies.

There are three major credit agencies (Equifax, Experian, Transunion) that will provide you with a free credit report once per year at AnnualCreditReport.com.

After you get your report, see if there are any inaccuracies, such as credit cards listed under your name that you’re not aware of, he said.

“This could be as simple as someone with the same or similar name to you and as sinister as someone opening a credit card in your name,” he said. “We recommend that clients rotate the free request from each company throughout the year on a predetermined schedule to ensure you are monitoring it throughout the year.”

For example, request Experian in January, Equifax in May and TransUnion in September, he said.

Paying your bills in a timely manner and making sure you don’t have a lot of outstanding balances compared to your credit limits, he said.

“Paying timely seems pretty self-explanatory. However, the penalty in credit score for a late payment can be pretty steep, maybe 50 to 100 points damage,” he said. “The recommendation is to automate your bill paying to ensure you are not late on a payment.”

If you have too much debt outstanding to your total available credit – known as the credit utilization ratio – you would come across as more of a credit risk.

The lower the ratio, the better, Zagarola said, so you should try to reduce your debt.

“Another option is to increase your credit limit, which lowers your outstanding debt as a percentage of credit available,” he said. “However, the down side here is that if you could not handle your spending at lower credit limits, this could be more of an issue if you can borrow more.”

In the short-term, make sure you don’t apply for new credit because that will have a negative impact on your score, he said.

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This story was originally published on Aug. 16, 2019.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.